short note on actual and potential gdp in 100-200 words
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Explanation:
2012, No. 11Posted Office data shows how much estimates of the output gap can change as time passes.
2012, No. 11Posted Office data shows how much estimates of the output gap can change as time passes.Potential gross domestic product (GDP) is a theoretical concept that means different things to different people. To some, it reflects a world in which every worker is matched with the perfect job, every good idea is implemented, and the bad ones are ignored. In this world, resources are allocated optimally with no distortions from the tax code, information frictions, or suboptimal government policies.
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The GDP is the currency value of all finished goods & services produced within a specific nation for a given period. GDP offers a country's economic snapshot, which helps to measure the national size & growth & development rate. GDP can be measured in three ways, using production, incomes, & expenditures.
Explanation:
- Potential GDP is the "amount of goods & services likely to be generated by the economy" when workforce are completely employed and the capital resources are used in full. Actual GDP is the actual output of goods & services. Actual GDP is a more precise measurement of current GDP then potential GDP, as it represents the actual financial output of a nation or region.
- Potential GDP is used to determine how good a nation/region will perform in one quarter, however the "actual measurement" could be entirely different. This implies that actual GDP is used in to measure the past quarter, while potential GDP is being used as a tool to measure for the next quarter.
- Potential GDP is dependent on the "estimated inflation rate", and thus real GDP cannot be greater than its "estimated value". Actual GDP, dependent on production/output amounts and inflation, will drastically alter over the quarter. Although potential GDP is sometimes used as a tool to display the "maximum/highest GDP value" of a nation/region, actual GDP may be higher than potential GDP at times.
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