<p>The GDP gap, a macroeconomic concept, refers to the difference between an economy's actual and potential Gross Domestic Product (GDP).</p>

<h2>How It Works</h2>
<p>The potential GDP is the maximum amount an economy can produce without causing inflation. The actual GDP is the current output. The GDP gap is calculated as:</p>
<ul>
  <li><strong>Potential GDP - Actual GDP</strong></li>
</ul>
<p>If the result is positive, it's an output gap (recession). If negative, it's an inflation gap (boom).</p>

<h2>Why It Matters</h2>
<p>The GDP gap is crucial for policymakers. A persistent output gap signals an economy below its potential, indicating the need for stimulus policies to boost growth. Conversely, a large inflation gap may warrant tightening policies to prevent overheating. For instance, during the 2008 recession, the U.S. GDP gap was around 7%, highlighting the need for significant fiscal and monetary stimulus.</p>