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In economics
Economics

File:Ballard Farmers' Market - vegetables.jpgEconomics is the Social sciences that studies the Production theory basics, Distribution , and Consumption of Good and Service ....
, potential output (also referred to as "natural gross domestic product") refers to the highest level of real Gross Domestic Product
Gross domestic product

File:GDP nominal per capita world map IMF 2008.pngThe gross domestic product or gross domestic income is one of the measures of national income and output for a given country's economy....
 output that can be sustained over the long term. The existence of a limit is due to natural and institutional constraints. If actual GDP rises and stays above potential output, then (in the absence of wage and price controls) inflation
Inflation

In economics, inflation is a rise in the general price level of goods and services in an economy over a period of time. The term "inflation" once referred to increases in the money supply ; however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflatio...
 tends to increase as demand
Demand

Economics*Demand ,the desire to own something and the ability to pay for it*Demand curve,a graphic representation of a demand schedule *Demand deposit, the money in checking accounts...
 exceeds supply
Supply and demand

...
. This is because of the limited supply of workers and their time, capital equipment, and natural resources, along with the limits of our technology
Technology

Technology is a broad concept that deals with an animal species' usage and knowledge of tools and crafts, and how it affects an animal species' ability to control and adapt to its Natural environment....
 and our management
Management

Management in business and human organization activity is simply the act of getting people together to accomplish desired goals. Management comprises planning, organizing, staffing, leadership or directing, and Control an organization or effort for the purpose of accomplishing a goal....
 skills.






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In economics
Economics

File:Ballard Farmers' Market - vegetables.jpgEconomics is the Social sciences that studies the Production theory basics, Distribution , and Consumption of Good and Service ....
, potential output (also referred to as "natural gross domestic product") refers to the highest level of real Gross Domestic Product
Gross domestic product

File:GDP nominal per capita world map IMF 2008.pngThe gross domestic product or gross domestic income is one of the measures of national income and output for a given country's economy....
 output that can be sustained over the long term. The existence of a limit is due to natural and institutional constraints. If actual GDP rises and stays above potential output, then (in the absence of wage and price controls) inflation
Inflation

In economics, inflation is a rise in the general price level of goods and services in an economy over a period of time. The term "inflation" once referred to increases in the money supply ; however, economic debates about the relationship between money supply and price levels have led to its primary use today in describing price inflatio...
 tends to increase as demand
Demand

Economics*Demand ,the desire to own something and the ability to pay for it*Demand curve,a graphic representation of a demand schedule *Demand deposit, the money in checking accounts...
 exceeds supply
Supply and demand

...
. This is because of the limited supply of workers and their time, capital equipment, and natural resources, along with the limits of our technology
Technology

Technology is a broad concept that deals with an animal species' usage and knowledge of tools and crafts, and how it affects an animal species' ability to control and adapt to its Natural environment....
 and our management
Management

Management in business and human organization activity is simply the act of getting people together to accomplish desired goals. Management comprises planning, organizing, staffing, leadership or directing, and Control an organization or effort for the purpose of accomplishing a goal....
 skills. Graphically, the expansion of output beyond the natural limit can be seen as a shift of production volume above the optimum quantity on the average cost
Average cost

In economics, average cost is equal to total cost divided by the number of goods produced . It is also equal to the sum of average variable costs plus average fixed costs ....
 curve. Likewise, if GDP is below natural GDP, inflation will decelerate as suppliers lower prices to fill their excess production capacity.

Potential output in macroeconomics corresponds to one point on the production possibilities frontier (or curve) for a society as a whole seen in introductory economics, reflecting natural, technological, and institutional constraints.

Potential output has also been called the "natural gross domestic product." If the economy is at potential, the unemployment
Unemployment

File:World map of countries by rate of unemployment.pngUnemployment occurs when a person is available to work and currently seeking work, but the person is without Wage labour....
 rate equals the NAIRU
NAIRU

The term NAIRU is an acronym for Non-Accelerating inflation Rate of unemployment. It is a concept in economics theory significant in the interplay of macroeconomics and microeconomics....
 or the "natural rate of unemployment
Natural rate of unemployment

The natural rate of unemployment is a concept of Economics activity developed in particular by Milton Friedman and Edmund Phelps in the 1960s, both recipients of the Nobel Prize in Economics....
."

Generally speaking, most central banks and other economic planning agencies attempt to keep GDP at or around the natural GDP level. This can be done in a number of ways: the two most common strategies are expanding or contracting the government budget (fiscal policy
Fiscal policy

In economics, fiscal policy is the use of government spending and revenue collection to influence the economy.Fiscal policy can be contrasted with the other main type of economic policy, monetary policy, which attempts to stabilize the economy by controlling interest rates and the supply of money....
), and altering the money supply
Money supply

In economics, money supply, or money stock, is the total amount of money available in an economy at a particular point in time. There are several ways to define "money", but standard measures usually include currency in circulation and demand deposits....
 to change consumption and investment levels (monetary policy
Monetary policy

Monetary policy is the process by which the government, central bank, or monetary authority of a country controls the supply of money, availability of money, and cost of money or rate of interest, in order to attain a set of objectives oriented towards the growth and stability of the economy....
).