Question
An economy’s output in year 0 is 10 percent below its
maximum potential output and the maximum potential output steadily increases at the rate of 5 per cent per annum after that. In such circumstances, for how many years would it be possible for that economy to maintain a 6 percent per annum rate of growth of actual output?ÂSolution
Solution The economy would not be able to maintain 6% per annum rate of growth of actual output, because the rate of growth in potential output is below the rate of actual growth desired.
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