10 Charts of the Year – GDP Gap

Today’s Chart of the Year comes from the U.S. Department of the Treasury.  It shows the gap between actual GDP and potential GDP (the historical trend).

Source: U.S. Department of Treasury via The Atlantic

What does this chart mean?

The economy suffered a severe shock during the recession, with the result that economic activity, represented by the blue line, contracted sharply. Since then, GDP has recovered at a steady pace and now stands above its pre-recession level. However, GDP growth has merely kept pace with its trend (or potential) rate, the red line, which is a function of population growth, changes in labor supply, and productivity growth.  As a result, the gap between what our economy is producing and what it could produce if it were operating at the level implied by the trend has not closed much. The green bars show this unused capacity to have equaled 7.4% – or more than $1 trillion – of potential output in Q3 2011. This unused capacity represents workers who cannot find jobs, idle machinery, and foregone opportunities for growth; in this challenging economy, this chart underscores why we must continue to focus attention on investments in the economic recovery and long-run growth.  — Treasury Assistant Secretary for Economic Policy Dr. Jan Eberly

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