When the economy is at full employment, real GDP equals potential GDP and there is no output gap.

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When the economy is at full employment, real GDP
equals potential GDP and there is no output gap.
Output gap equals real GDP minus potential GDP,
expressed as a percentage of potential GDP.
• When the unemployment rate is above the natural
rate, real GDP is below potential GDP and the output
gap is negative.
• When the unemployment rate is below the natural
unemployment rate, real GDP is above potential GDP
and the output gap is positive.

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