what do uu mean by POTENTIAL and ACTUAL GNP??

Question

and plz. explain how they differ...and how to compute (i mean d' formula) for Potential and actual GNP..

thnx a lot.

Answer 1

Potential GDP is the GDP achievable without accelerating inflation. Actual GDP is the GDP that is actually achieved.

The formula for actual GDP is C + I + G + (X-M), where C is consumption expenditures, I is investment expenditures, G is government expenditures, X is exports and M is imports.

The potential GDP is usually estimated based on unemployment. Say, your NAIRU (Non-Accelerating Inflation Rate of Unemployment) is 6%, while your actual unemployment is 8%. So you would figure that potential GDP would be achieved if unemployment were two percentage points lower than it actually is, so your potential GDP would be about 2% higher than actual GDP.

Answer 2

Actual Gnp