Th2.5: Actual and Potential Growth Flashcards
What is the actual growth?
the percentage change in GDP. it is when the economy is actually producing more goods and services
What is potential growth?
the change in the productive potential of the economy over time, so the LRAS or PPF curve shifts
What is the productive potential determined by?
the factors of production and so potential growth means there have been resources discovered or more technology developed that will allow the economy to grow more
What do the difficulties in measuring productive potential result in?
changes in GDP are used as a measure of economic growth
What does a PPF show?
the potential output of the economy
An outward shift of the PPF is…
economic growth
What it would be classed as if the economy moves from inside the PPF to on the PPF?
economic recovery rather than economic growth
However, it is difficult to know where the PPF of an economy is and so economists tend to…
treat all increases in real GDP as economic growth
