Topic Videos
Output Gap and the Economic Cycle
- Level:
- AS, A-Level
- Board:
- AQA, Edexcel, OCR, IB, Eduqas, WJEC
Last updated 2 Dec 2020
This updated video explores the concept and measurement of the output gap using AD-AS analysis and UK economic data.
What is the output gap?
- The output gap is the difference between the actual level of GDP and its estimated potential level.
- The output gap is usually measured as a percentage of the level of potential output.
Negative output gap
- When actual GDP is less than potential GDP
- Some factor resources are under-utilized e.g. there is some demand-deficient unemployment in labour market
- Main problem is likely to be rising unemployment and possible deflation risk
Positive output gap
- Actual GDP is greater than the estimated potential GDP
- Some resources are working beyond their usual capacity (e.g. extra shift work & overtime)
- Main problem is rising demand-pull and cost-push inflationary pressures
You might also like

Twin Peaks for the UK Economy
19th October 2014

Which country has the biggest economy?
15th October 2014

Four facts about UK manufacturing industry
22nd October 2014

Growth and Development in the Ivory Coast
20th October 2014

Slowing German economy must raise investment
19th October 2014

Immigration and the UK Economy
19th October 2014

Bank of England Chief Economist on the Real Economy
19th October 2014
Inequality and consequences for economic growth
6th October 2014