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Q2: Growth in potential output is determined by growth in the labour force and growth in labour productivity. Suppose there is growth in both the
Q2: Growth in potential output is determined by growth in the labour force and growth in labour productivity. Suppose there is growth in both the labour force and labour productivity, based on increased capital and improved technology. (a) Illustrate the growth in potential output in an AD/AS diagram. (b) Aggregate demand is not changed by the change in potential output. Indicate any output gap caused by the change in potential output
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