The gross domestic product (GDP), a basic measure of an economy's economic performance, is the market value of all final goods and services produced within the borders of a nation in a year. GDP can be defined in three ways, all of which are conceptually identical. First, it is equal to the total expenditures for all final goods and services produced within the country in a stipulated period of time (usually a 365-day year). Second, it is equal to the sum of the value added at every stage of production (the intermediate stages) by all the industries within a country, plus taxes less subsidies on products in the period. Third, it is equal to the sum of the income generated by production in the country in the period, which is compensation of employees, taxes on production and imports less subsidies, and gross operating surplus (or profits).

Potential Gross Domestic Product, or Potential GDP, refers to the highest level of real Gross Domestic Product output that can be sustained by a country over the long term. It is thus a measurement of what a country’s gross domestic product would be if it was operating at full employment and utilizing all of its resources. Generally, this amount is greater than the actual GDP of a country, thus, the difference between a country’s potential GDP and its actual (real) GDP is known as the GDP or output gap. The output gap may be caused by economic inefficiencies such as unemployment, inflation, and government regulations, which most economies encounter, thereby impeding production levels.

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