“Potential GDP refers to the level of production of goods and services in an economy with...
“Potential GDP refers to the level of production of goods and services in an economy with full employment of its available resources.” Discuss three reasons for change in the level of potential GDP.
Homework Answers
Three reason for a change in the level of potential GDP is increase in the population i.e. the labor force, increase in the capital and an improvement in the technology.
If the labor force in the economy increases it will increase the potential GDP as more employed people will be able to generate more GDP at a lower price.
If the capital increase it will increase the output capacity of the firms and economy and allow the GDP to achieve a higher growth target. and if there is a better technology in the market then the firms can also produce more. This will increase the potential GDP.
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