Short Run Economic Growth - Occurs through better use of factors of production
Long Run Economic Growth - Occurs because maximum output can increase (usually due to increased productivity)
Short Run vs Long Run
72 year rule - 1% increase in GDP per year = doubling size of economy in 72 years (Exponential relationship)
Output Gap = Potential GDP (LR) - Actual GDP (SR)
If actual exeeds potential, there's a positive output gap. (Little spare capacity)
If potential exeeds actual, there's a negative outut gap. (Room for growth and spare capacity)
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