Output gap

The output gap is the difference between an economy's actual output, otherwise known as gross domestic product (GDP), and what it would be if that country's industries were working flat out. The bigger the gap, the less scope businesses have to raise prices.

This means less chance of inflation picking up - indeed, prices could actually fall. But measuring output gaps can be tricky. That's because in a deep recession, many firms cut costs by mothballing or completely shutting down some of their less profitable spare capacity. This curbs downward price pressures.

MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

MoneyWeek is written by a team of experienced and award-winning journalists, plus expert columnists. As well as daily digital news and features, MoneyWeek also publishes a weekly magazine, covering investing and personal finance. From share tips, pensions, gold to practical investment tips - we provide a round-up to help you make money and keep it.