How this calculator works
Potential GDP estimates what the economy could produce with its labour and capital fully and sustainably employed, without pushing inflation up. The GDP gap, also called the output gap, measures actual output against that benchmark. A negative gap is spare capacity: factories run below capacity and unemployment tends to sit above its natural rate. A positive gap means the economy is running hot. Potential output is an estimate, not an observation, so the gap is only as reliable as the model behind it and is revised as new data arrive.
Formula
GDP gap = (actual GDP - potential GDP) / potential GDP, displayed as a percentage. Actual GDP = potential GDP × (1 + gap) and potential GDP = actual GDP / (1 + gap). The gap in dollars is actual GDP - potential GDP.
Worked example
Actual GDP of $1,450 with potential GDP of $1,500 leaves a gap of -$50, or -3.3333% of potential. The economy is producing about 3.3% below its estimated capacity.
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Frequently asked questions
Is the GDP gap the same as Okun's law?
No. Okun's law links the output gap to the unemployment gap. You can measure the GDP gap first, then use Okun's coefficient to estimate how much unemployment that implies.
Why is potential GDP not just the highest GDP ever recorded?
A peak year can itself be a boom driven by unsustainable demand. Potential output is modelled from trend growth and the sustainable supply of labour and capital, not from a single good year.
Which GDP should I use?
Use real GDP on both sides so the gap reflects volume rather than price changes. Comparing nominal GDP with real potential output mixes two different measures.