Community and Government

Economics 101: What Is Potential GDP and Why Does It Matter in Business and Economics?

Written by MasterClass

Last updated: Oct 12, 2022 • 4 min read

How do you gauge the overall health of an economy? Most economists and governments use Gross Domestic Product, also known as GDP, or real GDP. GDP represents the total market value of all the goods and services produced by a state over a given period of time. But if GDP represents the actual health of an economy, how do economists know what to compare it to? Put another way, how do economists determine how much the economy should be producing? To answer this question, economists use a related metric: potential GDP.