Gaps and Gap Analysis

Okun Gap

By March 17, 2016 December 1st, 2018 No Comments

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When Things Don’t Add Up

Although you might not be that interested in delving into macroeconomic theory, it’s important to realize that many of the principles that it uses can help us to understand things like inflation and instability among interest rates and lenders when the economy isn’t doing that well. Unlike stock chart patterns, which are mostly used to help analysts to identify and interpret trends and patterns in the market, so that they can make more accurate predictions about what’s coming next, the Okun gap is used to help analysts understand what’s going on currently.

Technical analysts express the Okun gap as a percentage or absolute and use it to measure how much output (measured by gross domestic product) the economy created during a given time period in relation to the output produced at full-employment level.

There are many things that have gone wrong to put a country into a recession, but one of the biggest factors is when unemployment is down and the gross domestic product suffers as a result. The Okun gap is a macroeconomic tool that helps economists to describe the circumstances when an economy’s potential gross domestic product differs from gross domestic product that is actually being observed. Examining inflation levels and unemployment numbers can also help analysts determine whether the gap is recessionary or inflationary.