MODULE 3
,Actual and Potential GDP
, Definitions
Actual GDP:
• Refers to the real-time measure of the economic output of a country.
• Represents the current level of goods and services produced over a specific perio
quarterly or yearly).
Potential GDP:
• Represents the maximum possible output an economy can achieve when opera
capacity, without causing inflation.
• Assumes full employment, optimal use of resources, and stable prices.
• It’s the theoretical upper limit of production that the economy can achieve u
conditions.
• Not directly observable but estimated using economic models.
, Determinants
Actual GDP:
• Driven by demand-side factors, including consumer spending, busin
investment, government spending, and external demand.
• Short-term fluctuations due to economic cycles.
Potential GDP:
• Determined by supply-side factors such as the quantity and quality of resou
(labor, capital), technological advances, and overall productivity trends.
• Reflects the long-term growth capacity of the economy.
,Actual and Potential GDP
, Definitions
Actual GDP:
• Refers to the real-time measure of the economic output of a country.
• Represents the current level of goods and services produced over a specific perio
quarterly or yearly).
Potential GDP:
• Represents the maximum possible output an economy can achieve when opera
capacity, without causing inflation.
• Assumes full employment, optimal use of resources, and stable prices.
• It’s the theoretical upper limit of production that the economy can achieve u
conditions.
• Not directly observable but estimated using economic models.
, Determinants
Actual GDP:
• Driven by demand-side factors, including consumer spending, busin
investment, government spending, and external demand.
• Short-term fluctuations due to economic cycles.
Potential GDP:
• Determined by supply-side factors such as the quantity and quality of resou
(labor, capital), technological advances, and overall productivity trends.
• Reflects the long-term growth capacity of the economy.
