Actual Growth Versus Potential Growth In National Output
Economics notes
Actual Growth Versus Potential Growth In National Output
➡️ Economic growth is the increase in the production of goods and services over a period of time. It is measured by the increase in a country's gross domestic product (GDP).
➡️ Sustainability is the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs. It is achieved through the use of renewable resources, efficient use of resources, and the reduction of pollution and waste.
➡️ Economic growth and sustainability are closely linked. Sustainable economic growth requires the use of resources in a way that does not deplete them, and that does not damage the environment. It also requires the development of policies and practices that promote economic growth while protecting the environment.
What is the difference between actual growth and potential growth in national output?
Actual growth refers to the increase in real GDP over a period of time, while potential growth refers to the maximum sustainable rate of growth that an economy can achieve without causing inflationary pressures. Actual growth can exceed potential growth in the short run, but in the long run, an economy's actual growth rate will converge towards its potential growth rate.
What factors can cause actual growth to deviate from potential growth?
Actual growth can be affected by a variety of factors, including changes in aggregate demand, shifts in aggregate supply, fluctuations in business cycles, and changes in government policies. For example, an increase in government spending can boost aggregate demand and lead to higher actual growth, but if the economy is already operating at or near its potential, this can also lead to inflationary pressures.
Why is it important to distinguish between actual growth and potential growth in national output?
Distinguishing between actual growth and potential growth is important because it helps policymakers to identify whether an economy is operating at its full potential or not. If actual growth is consistently below potential growth, this suggests that the economy is underperforming and may require policy interventions to boost growth. On the other hand, if actual growth is consistently above potential growth, this can lead to inflationary pressures and may require policy interventions to cool down the economy.