### What is the GDP gap?

A GDP gap is the difference between actual GDP and potential GDP. The calculation of the GDP gap is actual output minus potential output. If this calculation yields a positive number it is called an inflationary gap and indicates the increased growth of aggregate demand is outpacing the growth of aggregate supply which may possibly create inflation. If the calculation yields a negative number it is called a recessionary gap- possible signifying deflation.

### What are the consequences of a negative GDP gap?

The "GDP gap" is the difference between what the economy could produce at its potential GDP and what it is producing, its actual GDP. The consequence of a negative GDP gap is that what is not produced -- the amount represented by the gap---is lost forever. Moreover, to the extent that this lost production represents capital goods, the potential production for the future is impaired. Future economic growth will be less. The noneconomic effects of…

### How does real GDP affect unemployment rate?

Real GDP is a measure of the economic output of a country. The absolute measure only tells you what that output was for a particular period. The more important measure for employment is the difference between real GDP and a theoretical real GDP which economists use to calculate the maximum output of an economy. When the gap between real GDP and maximum output GDP is large, the unemployment rate will be large and vice versa.

### If full employment in this economy is 130 million will there be an inflationary expenditure gap or a recessionary gap What will be the consequence of this gap By how much would aggregate expenditures?

A recessionary gap. Equilibrium GDP is $600 billion, while full employment GDP is $700 billion. Employment will be 20 million less than at full employment. Aggregate expenditures would have to increase by $20 billion (= $700 billion -$680 billion) at each level of GDP to eliminate the recessionary gap. The MPC is .8, so the multiplier is 5.

### What does gap insurance in Virginia do?

It is different from regular insurance because it covers you for the difference between your car's value, and what you owe on it if you have an accident that totals the car, or the vehicle is stolen. If you are making payments on the vehicle, and you owe more than its value, your GAP insurance will cover the difference.