2.5

• Actual Growth Rates

  Observed or measured changes in an economy's real GDP over a specific period, such as a year or a quarter
• Actual Growth Rates

  • Represent short-term fluctuations in economic activity
  • Influenced by changes in consumer spending, investment, government policies, and external shocks
  • Reported as annualised percentage changes
• Long-Term Trends in Growth Rates

  Sustained patterns of economic growth observed over extended periods, typically spanning several years or decades
• Long-Term Trends in Growth Rates

  • Capture the underlying potential growth rate of an economy
  • Determined by factors such as technological advancements, labour force growth, productivity improvements, and capital accumulation
  • Provide a broader perspective on an economy's performance and capacity to generate sustained increases in real output over time
  • Help economists and policymakers understand the structural characteristics and potential limitations of an economy's growth potential
• Actual Growth Rates vs Long-Term Trends

  • Actual growth rates focus on short-term fluctuations, while long-term trends analyse sustained patterns of growth over extended periods
  • Actual growth rates can deviate significantly from long-term trends due to cyclical factors, while long-term trends provide a more stable measure of an economy's potential growth
  • Actual growth rates are influenced by a wide range of factors, while long-term trends primarily reflect the underlying capacity of an economy to expand its productive capabilities
• Output Gap

  Difference between an economy's actual output and its potential output at a given point in time
• Output Gap

  • Positive output gap: Actual output exceeds potential output, indicating the economy is operating above its long-term capacity
  • Negative output gap: Actual output falls short of potential output, indicating the economy is operating below its long-term capacity
• Difficulties of Measurement

  1. Estimating the output gap accurately poses challenges for economists and policymakers

  2. Potential output is not directly observable and must be inferred using various statistical and econometric techniques

  3. Uncertainty and disagreement about the precise level of potential output due to factors such as labour force participation, productivity growth, and resource utilization

  4. Measuring actual output accurately involves accounting for changes in quality, composition, and productivity improvements

  5. Economic data used to calculate the output gap, such as GDP, may be subject to revisions, leading to retroactive adjustments in gap estimates