Introducing Money and Interest Rates Flashcards
(116 cards)
1
Q
What is money? What is it composed of? What does it also include?
A
Money is any item or commodity that is generally accepted as a means of payment for goods and services or for repayment of debt, and that serves as an asset to its holder. On the simplest level, money is composed of the bills and coins which have been printed or minted by the National Government (these are called currency). But money also includes the funds stored as electronic entries in one’s checking account and savings account.
2
Q
Why does the financial system work on an entirely fiduciary basis?
A
Because money in a modern economy is not directly backed by intrinsic value (e.g., the coin’s weight in gold or silver), the financial system works on an entirely fiduciary basis, relying on the public’s confidence in the established forms of monetary exchange.
3
Q
How does money facilitate transactions?
A
By giving goods and services an easily measured value, money facilitates the billions of transactions that take place every day.
4
Q
How were transactions done before money was invented? Compare it with money.
A
Before its invention, people bartered, swapping goods they produced themselves for things they needed from others. Barter is sufficient for simple transactions, but not when the things traded are of differing values, or not available at the same time.
Money, by contrast, has a recognized uniform value and is widely accepted.
5
Q
What are those that control a country’s economy?
A
Today it is the nation’s government and central bank that control a country’s economy.
6
Q
What is the Federal Reserve?
A
The Federal Reserve (known as “The Fed”) is the central bank in the US. The Fed issues currency, determines how much of it is in circulation, and decides how much interest it will charge banks to borrow its money.
7
Q
What is the central bank in the Philippines?
A
In the Philippines, the central bank that controls the country’s economy is the “Bangko Sentral ng Pilipinas”.
8
Q
Does money still need to exist as physical coins or notes?
A
While government still print and guarantee money, in today’s world it no longer needs to exist as physical coins or notes, but can be found solely in digital form.
9
Q
List the defining characteristics of money.
A
Money must have the following as a means of exchange:
1. Value
2. Durability
3. Portability
4. Uniformity
5. Divisibility
6. Limited supply
7. Usability
10
Q
What underlies all the characteristics of money?
A
Trust
11
Q
Explain the importance of trust as the underlying factor of all the characteristics of money.
A
Trust is crucial because people must be confident that if they accept money, it can be used to pay for goods.
12
Q
How does money act as a STORE OF VALUE?
A
Money serves as a store of value, allowing people to store wealth for future use. It must be non-perishable and of practical size for easy storage and transportation.
13
Q
How does money function as an ITEM OF WORTH?
A
Originally, money often had intrinsic value, like precious metals in coins, which acted as a GUARANTEE for its acceptance. Now it has nominal value.
14
Q
Explain the concept of money as a MEANS OF EXCHANGE and its importance in facilitating transactions.
A
Money serves as a means of exchange, enabling the smooth exchange of goods and services. Its value should be stable, and it should be easily divisible, with sufficient denominations to provide change.
15
Q
What is the role of money as a UNIT OF ACCOUNT, and why is it helpful to have one recognized authority issuing money?
A
Money functions as a unit of account, allowing individuals and nations to record wealth possessed, traded, or spent. Having one recognized authority issuing money is crucial to maintaining trust in its value.
16
Q
What would happen if anyone could issue money?
A
Trust in its stability would diminish.
17
Q
Define money’s role as a STANDARD OF DEFERRED PAYMENT and explain its significance. What does this function enhance?
A
It allows for transactions where payment is postponed to a future date. This characteristic enhances the flexibility and efficiency of economic transactions.
18
Q
Enumerate all the functions of money.
A
- Store of value
- Unit of account
- Means of exchange
- Item of Worth
- Standard of Deferred Payment
19
Q
Provide the time when bartering started and ended.
A
10,000–30,000 BCE
20
Q
Who is Adam Smith?
A
Author of The Wealth of the Nations, he was one of those who recognized barter as the precursor to money.
21
Q
Explain the advantages of barter.
A
- Trading relationship - Fosters strong links between partners.
- Physical goods are exchanged - Barter does not rely on trust that money will retain its value.
22
Q
Explain the disadvantages of barter.
A
- Market needed – Both parties must want what the other offers.
- Hard to establish a set value on items – Two goats may have a certain value to one party one day, but less a week later.
- Goods may not be easily divisible – For example, a living animal cannot be divided.
- Large-scale transactions can be difficult – Transporting one goat is easy, moving 1,000 is not.
23
Q
When did trade records start appearing?
A
7000 BCE
24
Q
Explain coinage. When was it established and until when?
A
Defined weights of precious metals used by some merchants were later formalized as coins that were usually issued by states (600 BCE-1100CE).
25
Explain banknotes. When was it invented?
States began to use bank notes, issuing paper IOUS that were traded as currency, and could be exchanged for coins at any time (1100-2000).
26
List down the ARTIFACTS OF MONEY and explain them briefly.
Barter (5,000 BCE) - Early trade involved directly exchanged items - often perishable ones such as a cow.
Sumerian cuneiform tablets (4,000 BCE) - Scribes recorded transactions on clay tablets, which could also act as receipts.
Cowrie shells (1,000 BCE) - Used as currency across India and the South Pacific, they appeared in many colors and sizes.
Lydian gold coins (600 BCE) - In Lydia, a mixture of gold and silver was formed into disks, or coins, stamped with inscriptions.
Athenian drachma (600 BCE) - The Athenians used silver from Laurion to mint a currency used right across the Greek world.
Han dynasty coin (200 BCE) - Often made of bronze or copper, early Chinese coins had holes punched in their center.
Roman coin (27 BCE)- Bearing the head of the emperor, these coins circulated throughout the Roman Empire
Byzantine coin (700) - Early Byzantine coins were pure gold; later ones also contained metals such as copper.
27
Why did Economics emerge?
Economics as a discipline emerged, in part to help explain the inflation caused in Europe by the large-scale importation of silver from the newly discovered Americans.
28
What was the significance of the Great Debasement that occurred from 1542 to 1551 during the reign of England's Henry VIII?
The Great Debasement was a period during Henry VIII's reign when the silver penny was debased, reducing its purity to three-quarters copper. This action led to increased inflation as trust in the currency decrease.
29
What does "debasing" mean?
"Debasing" refers to the act of reducing the value or quality of something, particularly in the context of currency, by reducing the precious metal content or altering its purity.
30
What significant development occurred with the formation of early joint-stock companies in England in 1553?
In 1553, merchants in England began forming early joint-stock companies, where investors purchased shares (stock) and collectively shared the rewards and risks of business ventures.
31
What was the purpose behind the establishment of the Bank of England in 1694?
The Bank of England was created to function as an institution capable of raising funds at low interest rates and managing the national debt.
32
How did Isaac Newton contribute to the monetary system during his tenure as Warden of the Royal Mint in 1696?
As Warden of the Royal Mint in 1696, Isaac Newton argued against debasing currency, emphasizing the importance of maintaining public confidence. Under his leadership, all coins were recalled, and new silver coins were minted to restore trust in the currency.
33
What does "minting" mean?
"Minting" refers to the process of manufacturing coins, typically carried out by an official institution responsible for producing currency, known as a mint. During minting, metal blanks are stamped with designs, denominations, and other necessary information to create official coins for circulation in an economy.
34
When was the United States dollar first authorized for issuance by the Continental Congress, and when was the first national currency minted by the US Treasury?
The Continental Congress authorized the issuance of United States dollars in 1775. However, the first national currency was not minted by the US Treasury until 1794.
35
Explain money's facilitation of the flow of resources.
Money facilitates the flow of resources in the circular model of macroeconomy. Not enough money will (1) SLOW DOWN the economy, and too much money can cause (2) INFLATION because of higher price levels. Either way, (3) MONITORING the supply and demand for money is (3) VITAL for the economy's central bank's monetary policy.
36
What are the aims of the economy's central bank's monetary policies?
Mainly to (1) STABILIZE price levels and to support (2) economic GROWTH.
37
Define the M1 key measure for the money supply.
The narrowest measure of the money supply. It includes:
- CURRENCY in circulation held by the nonbank public
- DEMAND deposits
- OTHER checkable deposits
- TRAVELER'S checks
M1 refers primarily to money used as a MEDIUM OF EXCHANGE.
38
Define the M2 key measure for the money supply.
INCLUDING M1, this measure includes the following:
- money held in SAVINGS deposits
- MONEY MARKET deposit accounts
- NON-INSTITUTIONAL money market mutual funds
- other short-term money market assets (e.g.. "overnight" Eurodollars).
M2 refers primarily to money used as a STORE OF VALUE.
39
What is money market?
Money market basically refers to a section of the financial market where financial instruments with high liquidity and short-term maturities are traded.
40
What is a time deposit?
A time deposit, also known as a term deposit, is an interest-bearing bank account with a specific maturity date. The money in a time deposit must be held for the fixed term to receive the interest in full.
41
What are Eurodollars?
Eurodollar, a United States dollar that has been deposited outside the United States, especially in Europe. Foreign banks holding Eurodollars are obligated to pay in U.S. dollars when the deposits are withdrawn.
42
Define the M3 key measure for the money supply.
INCLUDING M2, this measure includes the financial institutions, (e.g., large-denomination time deposits and term Eurodollars).
M3 refers primarily to money used as a UNIT OF ACCOUNT.
43
Define the L key measure for the money supply.
INCLUDING M3, this measure includes liquid and near-liquid assets, such as the following:
- short-term Treasury notes
- high-grade commercial paper
- bank acceptance notes
44
Explain the M1 money supply and its influence to the bank's ability to extend loans.
The deposits of the public at banks and other depository institutions are considered money and are therefore included in the M1 money supply. If the public withdraws money from bank deposits to hold money as personal currency ("under the mattress"), this increase in inactive money will affect the banks' ability to extend loans and will influence the supply of money.
45
Some common forms of public payment may not count as part of the supply of money. What are they?
1. Check payments from one person to another are not included in the money supply because a check merely transfers money without being a net addition to the supply of money.
2. Consumer credit cards are not included in the money supply; they are considered instant loans to consumers and therefore are not a net addition to the money supply.
46
Explain the Bangko Sentral ng Pilipinas' (BSP) role.
The role of the Bangko Sentral ng Pilipinas (BSP) are the following:
1. It is responsible for DETERMINING the supply of money.
2. It uses daily open market operations to influence the CREATION of money by banks and to guide the AVAILABILITY of money in the economy.
3. BSP also has an impact on the creation of money by banks through reserve requirements and the discount rate, that is, the interest rate at which banks can borrow from the BSP as a lender of last resort.
47
What are the sources of the demand for money?
1. Transaction demand
2. Precautionary demand
3. Speculative demand
48
Define the transaction demand.
It is money demanded for day-to-day payments through balances held by households and firms (instead of stocks, bonds or other assets). This kind of demand varies with GDP; it does not depend on the rate of interest.
49
Define the precautionary demand.
It is money demanded as a result of unanticipated payments. This kind of demand varies with GDP.
50
Define the speculative demand.
It is money demanded because of expectations about interest rates in the future. This means that people will decide to expand their money balances and hold off on bond purchases if they expect interest rates to rise. This kind of demand has a negative relationship with the interest rate.
51
Give two demands that varies with GDP.
1. Transaction demand
2. Precautionary demand
52
What is the demand that has a relationship with interest rates? What is the relationship?
Speculative demand has a negative relationship with the interest rate.
53
What is the opportunity cost of holding money, and how does it relate to the interest rate?
The opportunity cost of holding money is the interest that could be earned on the money if it were invested in an interest-bearing account. This cost increases with higher interest rates. As interest rates rise, the incentive to hold money decreases, potentially leading to (1) decreased consumption and (2) increased saving.
54
How does the demand for currency relate to the interest rate?
The demand for currency has a negative relationship with the interest rate. When interest rates are high, the opportunity cost of holding money is greater, leading to a lower demand for currency. Conversely, when interest rates are low, it is cheaper to borrow money, increasing the quantity of money demanded.
55
How does an increase in the economy's price level affect the demand for money?
An increase in the economy's price level leads to an increase in the demand for money.
56
Explain how changes in real GDP impact the demand for money according to the information provided.
An increase in real GDP results in an increased demand for money. This is attributed to the higher demand for products in a growing economy, leading to an elevated need for transactions involving money.
57
How can changes in banking practices, specifically the development of new money products, influence the demand for money? Cite an example.
Changes in banking practices, such as the development of new money products, can affect the demand for money. For instance, if banks introduce products that allow easier, low-cost withdrawal, the demand for money may decrease. This could include savings accounts with less stringent time deposit requirements and lower penalties for withdrawal.
58
List three demand shifters for money.
1. Price Level Changes
2. Real GDP Changes
3. Changes in Banking Practices
59
In the macroeconomic short-run, what factor causes economic fluctuations?
In the macroeconomic short-run, economic fluctuations occur due to the inflexibility of certain prices, such as wage rates affected by labor contracts. This inflexibility results in real GDP being either below potential GDP or above potential GDP.
60
What refers to real GDP being below potential GDP?
Recessionary gap
61
What refers to real GDP being above potential GDP?
Inflationary gap
62
What is the immediate, short-run impact of the BSP's monetary policy to increase interest rates on the economy?
The BSP's monetary policy has an immediate, short-run impact on the economy:
1. Higher interest rates, as implemented by the BSP, decrease investment due to increased borrowing costs, and they also decrease consumption as consumers save more with higher interest rate returns.
2. Elevated Philippine interest rates lead to increased demand for pesos on the foreign exchange markets, making exports more expensive and decreasing them.
3. Consequently, when the BSP raises interest rates, real GDP growth and the inflation rate tend to slow down.
63
When the economy experiences an inflationary gap in the short-run, how might the BSP use monetary policy to address the situation?
In the short-run, when facing an inflationary gap, the BSP may implement a monetary policy to prevent inflation. This can involve decreasing the quantity of money and raising the interest rate.
64
What are the short-run consequences of the BSP's policy to combat an inflationary gap?
The short-run consequences of the BSP's policy to counter an inflationary gap include a decrease in investment, consumption, and net exports. The higher interest rate resulting from this policy leads to reduced economic activity and aggregate demand, contributing to a decrease in real GDP and a lowering of the price level.
65
How does the assumption of price flexibility in the macroeconomic long-run impact the movement of real GDP toward potential GDP?
With the assumption of price flexibility, the decrease in aggregate demand resulting from the BSP's policy will lead to a movement of real GDP toward potential GDP, helping to mitigate the inflationary pressures in the long term.
66
What are called the bills and coins which have been printed or minted by the National Government
Currency
67
What happens to aggregate demand, the price level, and real GDP when the BSP increases the money supply while the economy is at its long-run equilibrium?
When the BSP increases the money supply while the economy is at its long-run equilibrium, it boosts aggregate demand. Consequently, both the price level and real GDP increase. This situation indicates the existence of an inflationary gap, where the actual unemployment rate is below the natural rate.
68
How does the tightness in the labor market affect the money wage rate?
The tightness in the labor market leads to an increase in the money wage rate. This occurs as employers offer higher wages to attract workers due to the lower unemployment rate.
69
What effect does the increase in labor costs have on short-run aggregate supply, and what does it result in for real GDP?
The increase in labor costs leads to an increase in short-run aggregate supply. As a result, real GDP returns to the level of potential GDP, aligning with the long-run equilibrium of the economy.
70
According to the quantity theory of money, what directly influences the economy's price level?
Changes in the money supply (MS) directly influence the economy's price level, according to the quantity theory of money.
71
In the equation of exchange M x V = P x Y, what do the variables M, V, P, and Y represent?
M represents the quantity of money.
V represents the velocity of money, which is the average number of times a unit of money is used during a year to purchase GDP's goods and services.
P represents the price level.
Y represents real GDP.
72
What is the equation of exchange, and how does it relate to the quantity theory of money?
The equation of exchange, represented as M x V = P x Y, relates to the quantity theory of money. It states that the economy's nominal GDP or expenditures (P x Y) equals the money actually used in the economy (M x V).
73
According to the quantity theory of money, how is the velocity of money (V) affected by changes in the quantity of money (M)?
The velocity of money (V) is not affected by changes in the quantity of money (M) and is considered constant.
74
Is potential real GDP affected by changes in the quantity of money (M), according to the quantity theory of money?
No, potential real GDP (i.e., long-run equilibrium) is not affected by changes in the quantity of money (M) and is considered constant under the quantity theory of money.
75
What does the (neo) classical neutrality of money imply regarding the effects of changes in the money supply?
The (neo) classical neutrality of money implies that changes in the money supply only affect nominal values, such as prices, but do not impact real values, such as real output. In other words, the money supply leaves real output unaffected
76
What does historical evidence suggest about the relationship between the money growth rate and the inflation rate in the long-run?
Historical evidence suggests that the money growth rate and the inflation rate are positively related in the long-run. However, the year-to-year relationship is weaker.
77
Why does the equation of exchange not hold in the short-run?
The equation of exchange does not hold in the short-run because the economy does not immediately adjust due to price inflexibility.
78
What is the relationship between the quantity of money (M) and the price level (P) in the long-term?
Answer 3: Although the relationship between the quantity of money (M) and the price level (P) may not be causal, as suggested by quantity theory theorists, there appears to be a correlation between M and P in the long-term.
79
Can growth in the quantity of money (M) be utilized as a statistical estimate for the rate of inflation? What implication does this have for the role of the Central bank?
Yes, growth in the quantity of money (M) can be used as a statistical estimate for the rate of inflation. This suggests that the Central bank can be effective in stabilizing prices by controlling the growth rate of the money supply.
80
How is interest generally defined in business terms?
In general business terms, interest is defined as the cost of using money over time.
81
What definition of interest do economists prefer?
Economists prefer to define interest as representing the time value of money.
82
What is another term used to refer to present value?
Present discounted value
83
What concept is the idea of present value based on, and why is it considered commonsense?
The concept of present value is based on the commonsense notion that a cash flow paid to you one year from now is less valuable to you than the same amount of cash paid to you today.
84
How is the interest rate viewed from the perspective of a potential borrower?
The interest rate is perceived as the premium that must be paid to acquire goods sooner and pay for them later.
85
What does the interest rate represent for lenders?
For lenders, the interest rate serves as a reward for waiting for payment while supplying others with current purchasing power.
86
In a modern economy, why is the interest rate often defined as the price of loanable funds?
In a modern economy, people frequently borrow funds to finance current investments and consumption. Therefore, the interest rate is often defined as the price of loanable funds.
87
What aspect of borrowing is emphasized regarding the desire of the borrower?
It is the earlier availability of goods and services purchased, not the money itself, that is desired by the borrower.
88
How are interest rates determined in a modern economy?
Interest rates are determined by the demand for and supply of loanable funds.
89
What factors contribute to the demand for loanable funds by investors?
Investors demand funds to finance capital assets because they believe they will increase output and generate profit.
90
Why do consumers demand loanable funds, according to the text?
Consumers demand loanable funds due to their positive rate of time preference, as they prefer earlier availability of goods and services.
91
What is time preference?
Time preference is the tendency of people to choose present goods over future goods. It can also be defined as the value people place on receiving something earlier rather than later.
92
How do higher interest rates affect the costs for investors and consumers?
Answer 1: Higher interest rates increase the costs for investors to undertake capital spending projects and for consumers to make immediate purchases. Consequently, both investors and consumers tend to curtail their borrowing as interest rates rise.
93
Question 2: What is the relationship between the interest rate and the amount of funds demanded by borrowers?
The amount of funds demanded by borrowers is inversely related to the interest rate. In other words, as interest rates increase, borrowers tend to demand fewer funds, and as interest rates decrease, borrowers tend to demand more funds.
94
What is the consequence for individuals who borrow to undertake investment projects or consume beyond their current income? How does the interest rate reward lenders?
When some individuals borrow to undertake investment projects or consume more than their current income, others must reduce their current consumption by an equal amount. In turn, the interest rate rewards or compensates lenders who are willing to reduce their current consumption to provide loanable funds to others.
95
How do higher interest rates influence the ability of savers to purchase goods in the future?
Higher interest rates enable savers (those willing to supply loanable funds) to purchase more goods in the future in exchange for sacrificing current consumption.
96
What effect do rising interest rates have on the quantity of funds supplied to the loanable funds market?
As the interest rate rises, the quantity of funds supplied to the loanable funds market increases. This means that higher interest rates incentivize individuals to save more and supply more funds to the loanable funds market.
97
How does the rate of interest function in the money market?
The rate of interest serves as the price in the money market. Money, which has a time value, is bought and sold in the money market in return for the payment of interest.
98
Which institutions are involved in the money market?
The financial institutions dealing in government securities and loans, gold, and foreign exchange comprise the money market.
99
When does equilibrium occur in the money market?
Equilibrium in the money market occurs when the money demand and supply curves intersect at the equilibrium interest rate.
100
How would an increase in the quantity of money by the BSP affect the equilibrium interest rate?
If the BSP were to increase the quantity of money, the supply of money curve would shift to the right, resulting in a decrease in the equilibrium interest rate. The lower cost of borrowing could potentially spur higher consumption and investment.
101
According to Keynesian theory, how is the rate of interest determined, and in which two markets does it serve as a price?
According to Keynesian theory, the rate of interest is determined as a price in two markets: investment funds and liquid assets.
102
In the investment funds market, what role does the rate of interest play?
In the investment funds market, the rate of interest balances the demand for funds required for investment with the supply of funds from savings. They're in the form of stocks, bonds, etc
103
Describe the role of the rate of interest in the liquid assets market.
In the liquid assets market, borrowers require cash in the long term that doesn't need to be repaid to the lender immediately, so they are willing to compensate lenders for giving up liquidity. They're assets that can quickly be converted to cash.
104
What did Keynes introduce regarding the interest rate, and how did it differ from the views of classical economists?
Keynes introduced the influence of liquidity preference on the interest rate. Unlike classical economists, who considered investment funds as the critical market for the interest rate, Keynes emphasized the significance of liquidity preference.
105
Why was the potential lack of balance between the investment and money markets considered essential to Keynesians, and what was its impact on unemployment in the short-run?
Keynesians considered the potential lack of balance between the investment and money markets essential because they believed it could cause unemployment in the short run. They argued that if there was a lack of equilibrium between these markets, it could lead to insufficient demand for goods and services, resulting in unemployment.
106
During a period of inflation, why is the nominal interest rate or money rate of interest considered a misleading indicator of the true cost of borrowing and lending?
During inflation, the nominal interest rate or money rate of interest is considered misleading because it does not account for the reduction in the purchasing power of a loan's principal. Inflation reduces the value of money over time, meaning that lenders are effectively receiving back less purchasing power than they originally lent out.
107
How does inflation affect lenders' willingness to supply funds to the loanable funds market, according to the text?
Inflation makes lenders recognize that they are being repaid with money of less purchasing power. Unless they are compensated for anticipated inflation by an increase in the interest rate, lenders will be less willing to supply funds to the loanable funds market.
108
Why are borrowers willing to pay an inflationary premium during periods of anticipated inflation?
During periods of anticipated inflation, borrowers anticipate that goods and services will become more expensive in the future. Therefore, they are willing to pay an INFLATIONARY PREMIUM, an additional amount of interest that reflects the expected rate of future price increases, to secure loans and purchase goods and services at present.
109
How does anticipation of future inflation affect the supply and demand for loanable funds?
Anticipation of future inflation leads to a decrease in the supply of loanable funds (the supply curve shifts to the left) and an increase in demand for loanable funds (the demand curve shifts to the right). This is because both lenders and borrowers adjust their behavior in response to expectations of future inflation.
110
What is the "true" cost of borrowing and the yield from lending, and how is it calculated?
The "true" cost of borrowing and the yield from lending is known as the real interest rate, which accounts for inflation. It is calculated as the nominal interest rate minus the inflationary premium and reflects the actual purchasing power of borrowers and lenders in terms of their ability to buy goods and services.
111
What are the three components of money interest?
The three components of money interest are the risk premium, inflationary premium, and pure interest.
112
Why does the BSP utilize control over short-term interest rates to achieve its main goals?
The BSP utilizes control over short-term interest rates as one of its main tools to achieve goals such as controlling inflation, smoothing out the business cycle, and ensuring financial stability.
113
Which types of loans are typically affected by short-term interest rates, and which ones are influenced by long-term interest rates?
Short-term interest rates affect loans with relatively short repayment periods, while long-term interest rates impact loans such as long-term corporate borrowing and fixed-rate mortgages spanning 10, 20, or 30 years.
114
Why is it important for interest rates to remain stable?
Stable interest rates help prevent economic volatility, which is why governments and central banks collaborate to maintain stable rates of inflation and interest.
115
How do changes in interest rates impact business activity and employment levels?
Changes in interest rates have a significant impact on business activity and employment levels. Higher interest rates tend to make loans less affordable, leading to reduced spending, decreased demand for goods and services, and ultimately affecting business operations and employment levels. Conversely, lower interest rates make borrowing cheaper, encouraging increased spending, stimulating businesses, and potentially boosting employment levels.
116
What refers to long-term equilibrium?
Potential real GDP
