Answer to Question #113254 in Macroeconomics for ESTHER KUFFOUR

Question

Will the ceiling to output be in any way affected by the short-run rate of growth of GDP? If so, how?
Under what circumstances would you expect a rise in national income to cause a large accelerator effect? 4. Assume that interest rates fall. Under what circumstances will this lead to (a) a large rise in business investment; (b) little or no change in business investment?

Answer 1

In fact, potential GDP may seen as maximum long-term sustainability.The Congressional Budget Office (CBO) defines it as “an indicator of sustainable production at which the degree the use of resources does not affect the level of inflationary pressure. ”GDP consists of a long-term trend (which usually grows and therefore is non-stationary) and short-term (stationary)fluctuations around this trend. Short-term fluctuations are mainly cyclical in nature, but may also be associated with some random shocks that are not cyclical.

Maximum output may affect short-term GDP growth with positive supply and demand shocks.

This could be a technological breakthrough in the industry. But, this is very rare.

The growth of national income is due to the following factors: increase in investment, the rate of accumulation in national income, the heat of population growth and technological progress.

With the growth of these factors, acceleration can be achieved.

4.а.Interest rates are falling, loans are getting cheaper. Plus, consumers spend less on retail products. Low inflation is also observed.

b.The interest rate may fall, but there is a lot of inflation and therefore there is practically no investment