Economic Growth - How potential GDP grows

3 important questions on Economic Growth - How potential GDP grows

Which models do we use to determine potential GDP?

  1. An aggregate production function
  2. An aggregate labour market

What is the aggregate labour market?

One large labour market that determines quantity of labour employed and quantity of real GDP produced with 3 main factors: labour demand, labour supply and labour market equilibrium.

Potential GDP on a graph?

Labour hours (x-as) and real GDP (y-as) 

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