Kirti Delhi, India 226 Questions 325 Answers 23 Best Answers 1k Points View Profile Kirti Asked: June 12, 20212021-06-12T12:51:51+05:30 2021-06-12T12:51:51+05:30In: UPSC PRELIMS Describe Potential GDP. Describe Potential GDP. general Share Facebook 1 Answer Recent Ishu Innovative 370 Questions 228 Answers 176 Best Answers 1k Points View Profile Best Answer Ishu Innovative 2021-06-12T12:56:37+05:30Added an answer on June 12, 2021 at 12:56 pm Potential GDP: Like GDP, Potential GDP represents the market value of goods and services, but rather than capturing the current objective state of a nation’s economic activity, potential GDP attempts to estimate the highest level of output an economy can sustain over a period of time. According to OECD’s Economic Outlook publication, Potential gross domestic product (GDP) is defined as the level of output that an economy can produce at a constant inflation rate. Although an economy can temporarily produce more than its potential level of output, that comes at the cost of rising inflation. Potential output depends on the capital stock, the potential labour force (which depends on demographic factors and on participation rates), the non-accelerating inflation rate of unemployment (NAIRU), and the level of labour efficiency. Real GDP measures a country’s economic output adjusted for the impact of inflation. Real GDP makes comparing GDP from year to year and from different years more meaningful because it shows comparisons for both the quantity and value of goods and services. Nominal GDP is the market value of goods and services produced in an economy, unadjusted for inflation. Since nominal GDP doesn’t remove the pace of rising prices when comparing one period to another, it can inflate the growth figure. Economic growth at zero inflation is possible. But this could occur if there were improvements in productivity, which caused lower costs and higher output at the same time. There is no specific term for the measure of country’s economic output at zero inflation. 1 Reply Share Share Share on Facebook Share on Twitter Share on WhatsApp Cancel the best answer Leave an answerCancel replyYou must login or register to add a new answer. Related Questions What is E-Waste? Describe Narrow Band-Internet of Things (NB-IoT).