Wikipedia: "Output Gap"

Read this article, focusing your attention on the two types of GDP: full employment and equilibrium. You should be able to draw distinctions between these two types after reading this article. Full employment GDP occurs near potential GDP: where the long-run aggregate supply curve is vertical. In contrast, equilibrium GDP occurs where the short-run aggregate supply curve intersects the aggregate demand curve. Output gaps occur when the three curves intersect at different points.

The recessionary gap occurs to the left of long-run equilibrium in a graph depicting the aggregate demand, short-run aggregate supply, and long-run aggregate supply curves. In short, it means the business cycle is in a contractionary phase with high unemployment, low output, and low income levels. In contrast, the inflationary gap occurs to the right of long-run equilibrium.

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