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What is the Product Gap?

February 28, 2019

The output gap can be positive or negative.

A positive output gap occurs when effective output is greater than output at full capacity, for example, when factories and workers must operate well above their most efficient capacity to meet demand.

A negative output gap occurs when effective output is less than what an economy could produce at full capacity, and denotes idle capacity in the economy due to weak demand.

A gap indicates that an economy is inefficient because it is consuming too many resources or not consuming enough. (Source: IMF)

The output gap in Mexico will have to be negative in 2019, which implies that productive resources will be wasted in the economy.

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