OKUN GAP Meaning and
Definition
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Okun Gap is an economic concept that refers to the difference between actual and potential output in an economy. It is named after economist Arthur Okun, who first introduced the concept. The Okun Gap is used to measure the level of unemployment or underemployment in an economy.
The Okun Gap is calculated by comparing the current level of output in an economy, typically measured by Gross Domestic Product (GDP), with the economy's potential output. Potential output is the maximum level of output that an economy can sustainably produce without causing inflation. It is influenced by various factors such as labor force participation, productivity, and capital investments.
If the actual output is lower than the potential output, it indicates a negative Okun Gap, meaning the economy is operating below its full potential. This situation is usually associated with high unemployment rates and underutilization of resources. On the other hand, if the actual output exceeds the potential output, it implies a positive Okun Gap, suggesting an overheating economy that may experience inflationary pressures.
Policymakers and economists closely monitor the Okun Gap as a gauge of economic health and to inform policy decisions. Efforts are often made to minimize the Okun Gap and reduce unemployment by implementing measures such as fiscal stimulus, monetary policy adjustments, and labor market reforms.
Common Misspellings for OKUN GAP
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