come primarily from variations in actual output around potential output

Discussion in 'English Only' started by Puellam audiam, Aug 25, 2007.

  1. Puellam audiam

    Puellam audiam Senior Member

    Grenoble
    Taiwanese, Mandarin
    Hi; everyone!:)

    I am reading a book on macroeconomic.
    In the section of "Measure of Cyclical Variation in Output," I have poblem of understandig a sentence. The context is here:

    "Most of the analysis in this book focuses on short-term or cyclical movements in output and employment--fluctuations over periods of perhaps one to four years. In these short-term periods, fluctuations in output and emploument come primarily from variations in actual output around potential output, where potential oupput is defined as the level of real output that the economy could produce at high rates of recoursec utilization."
    (notice that the bold is made by author, not by me)

    I don't understand the second long sentences.
    For example, what does "come primarily from variations in actual output around potential output" mean?
    And I don't know the idea of "potential output" here either.

    Can someone informed of macroeconomics give me a hand?

    Thanks for your kind attention.
     
  2. Gordonedi

    Gordonedi Senior Member

    Strathaven
    UK (Scotland) English
    I am no expert in macroeconomics, but I am happy to provide an opinion on what this piece of text might mean.

    Potential output is the output that would be possible if everyone had a job, everyone was working hard, had the tools required for their job, and was well managed. So this is the maximum that could be expected, but is never likely to be achieved for long periods, if at all. But it is the level for which we should aim.

    Actual output can be measured, and when compared with potential output it will show levels of variance : the amount by which it differs will sometimes be small and sometimes great.

    The author is saying that these differences display a cyclical pattern over periods between one and four years. When levels of employment are low, so is output. One of the main debates in macroeconomics is how to turn this around so that both employment and output increase towards the maximum possible - thus achieving the potential.
     

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