Potential And Actual Economic Growth?
I know one is to do with the maximum capacity of an economy being increased, and one to do with Aggregate Demand increasing (I think)
Can anyone confirm which is which, or if I am right or wrong.
Answer:
Potential output growth is usually defined as the rate of growth in the economy that does not cause changes in the rate of unemployment. That is, it is the rate that the economy would grow at if the unemployment rate were at its "natural rate" (the NAIRU).
Most textbooks (Mankiw or Blanchard, for example) will point out this potential output growth rate is the sum of labour productivity growth and employment growth.
Actual growth is just the *actual* growth rate that the statistician sees when he "looks out the window". As in, the change in output divided by initial output.
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