Ideally, we  BIS Review 51/2004  1  want to see the economy operating close to its capacity, with total demand roughly in balance with total supply. If we achieve this, we can have the best outcome over time - strong, sustainable growth that avoids booms and busts, along with rising employment and low inflation.
One major problem is that we cannot directly measure potential output. Further, the economic data that measure actual output are often revised - sometimes significantly so. The challenge for us, then, lies in estimating the size of the output gap, and there is always a significant degree of uncertainty around that estimate.