What are output gap charts?

Output gap charts visually represent the difference between an economy's actual output and its potential output, indicating how well an economy is performing relative to its capacity. A positive output gap suggests the economy is over-performing, potentially leading to inflation, while a negative gap indicates underperformance, often associated with unemployment and lower inflation. These charts help policymakers assess economic health and make informed decisions regarding monetary and fiscal policies. By tracking the output gap over time, economists can identify trends and cycles in economic activity.