Can You Explain The GDP Gap?


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By GDP gap we mean that difference between the potential GDP (the GDP level that could have been achieved) and what the actual GDP is. When this gap is positive, that is, when potential GDP is more than the actual GDP then it means that the economy is expanding and it has potential to achieve much more. This also means that much of the potential of the economy went to waste because of various factors like lack of jobs for all those who were willing to work. On the other hand a negative GDP gap means that there is a recessionary gap.

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