Potential GDP growth is relatively smoother than aggregate demand growth.

Question

Quizplus · Accepted Answer

Potential GDP growth refers to the maximum sustainable output a country can produce without generating inflationary pressures in the economy, and it is determined by factors such as population growth, investments in physical and human capital, and technological progress. This growth is relatively smoother because these factors tend to evolve gradually over time, whereas aggregate demand growth may fluctuate more due to changes in government policies, external shocks, or consumer and business confidence.

Potential GDP Growth Is Relatively Smoother Than Aggregate Demand Growth