When the economy is at full employment, real GDP equals potential GDP and there is no output gap.

| March 14, 2016

When the economy is at full employment, real GDP
equals potential GDP and there is no output gap.
Output gap equals real GDP minus potential GDP,
expressed as a percentage of potential GDP.
• When the unemployment rate is above the natural
rate, real GDP is below potential GDP and the output
gap is negative.
• When the unemployment rate is below the natural
unemployment rate, real GDP is above potential GDP
and the output gap is positive.

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