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What Is GDP?

What is the difference between potential GDP/full employment GDP and GDP capacity?

  • So GDP capacity has to do with short run aggregate supply and potential GDP is maximum GDP?...

  • Answer:

    Economists use the terms "potential GDP/full employment GDP/GDP capacity" interchangeably. It basically refers to the highest level of GDP projected over the long term. It could be thought of as the "projected" GDP that embodies the minimum (and sustainable) long-term unemployment rate. There is some debate around this - if full employment is defined to be 0% or if full employment is defined at the natural rate of unemployment (which is typically an unemployment rate of 6-7% in the US). The latter is what I have been taught. Actual GDP obviously fluctuates around this, sometimes doing better than 6-7% unemployment, or sometimes doing worse. While the economy may be able to recover from certain shocks and return to the maximum "long-run" trend, there could also be shocks that are severe enough to the economy that would lower the level of "maximum projected" GDP over the long run. and to clarify further, the "long-run" in macroeconomics refers to a conceptual period whereby macroeconomic variables (such as the general price level and wage levels) are able to completely adjust to the state of the economy in contrast to the "short-run" when these variables are thought to be relatively fixed.

Jonathan Mingshan Ho at Quora Visit the source

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There is economics: basically, how you spend your own money - more generally, how you deploy your own resources. You are an expert on that: nobody else has a clue.Then there is macroeconomics/political economy/monetary theory - which is just politix - theory -hot air -tosh. Men who carry a burden of responsibility that is way beyond them, beyond anybody, beyond any conceivable system, university department, central banking office or government administration,  a task too large. Like life, or Health, or the global climate - where idiots claim scientific expertise, and less arrogant idiots allow them to get away with it, because it sounds like a good idea to have some expertise, even if it is non existant. But wouldn't it be convenient if they were right ? The economy of the whole nation, let alone the whole world, is VASTLY too complex for any model - economics is not an exact science, it is barely numerical, and all the economic models are no better than all the climate changer models: pretty, but all proposed ones so far have been tried in the balance and found wanting. They have been proven, and failed the test.So, by all means go and find/propose/build a better model: and if you can find one that works, do tell us, you would be down for a "Nobel" prize. Till then, forget all about GNP, GDP, and suchlike incantations; pure mumbo jumbo.Have a good life, (I suggest beyond economix.)  Peace

Chris Goodwin

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