Growth in potential GDP depends on
A)the labor force growth rate, capital stock growth rate, and rate of technical progress.
B)government spending, growth in prices, and labor productivity.
C)cyclical fluctuations and growth in the capital stock.
D)growth in real GDP, nominal GDP, and the population.

Question

Quizplus · Accepted Answer

Potential GDP is the maximum level of real GDP an economy can produce at full employment and full capacity utilization of its production facilities. The growth of potential GDP depends on three factors: labor force growth rate, capital stock growth rate, and rate of technical progress. Labor force growth rate is determined by the growth of the population and the labor force participation rate. Capital stock growth rate is determined by the level of investment by firms and the depreciation rate of existing capital. Rate of technical progress is determined by investment in research and development, innovation, and knowledge creation.

Growth in Potential GDP Depends on