This presentation discusses changes in potential GDP. An increase in potential GDP causes both the long-run aggregate supply curve (LRAS) and short-run aggregate supply curve (SRAS) to shift rightward, representing an increase in aggregate supply. Potential GDP can increase for three reasons: 1) an increase in the full employment level of labor, 2) an increase in the quantity of physical or human capital, or 3) technological advances that increase productivity.

1. WELCOME
TO OUR
PRESENTATION

2. PRESENTED TO:
DR. MOHAMMAD BAYEZID ALI
ASSOCIATE PROFESSOR
DEPARTMENT OF FINANCE
JAGANNATH UNIVERSITY, DHAKA.
PRESENTED BY:
GROUP-04

3. GROUP: 4
SL
NO.
ROLL NAME
1. B-120203032 RAJIB HUSSAIN
2. B-120203034 ASIBUL ISLAM MILU
3. B-120203043 TAJRIMA SULTANA SRISTI
4. B-120203045 MOHAMMADWASHIM
5. B-120203047 RASELAHAMED
6. B-120203055 SUJAN BHUIYAN
7. B-120203071 GAZI RAFSAN SHAHAB
8. B-120203137 AFRIN KHAN
9. B-110203091 EHSUN HOQUE

4. OUR TOPIC
IS
CHANGES IN POTENTIAL GDP

5. RASEL AHAMED
ID: B-120203047

6. CHANGES IN POTENTIAL GDP
When potential GDP changes, aggregate supply changes. An
increase in potential GDP increase both long-run aggregate
supply and short-run aggregate supply.
When potential GDP increases, both the LAS and SAS curves
shift rightward.

7. CHANGES IN POTENTIAL GDP
Figure 11.4 shows an
increase in potential
GDP increases both
long-run aggregate
supply and short-run
aggregate supply. The
long-run aggregate
supply curve shifts
rightward from LAS0
to LAS1 and the short-run
aggregate supply
curve shifts from
SAS0 to SAS1.

8. CHANGES IN POTENTIAL GDP
Potential GDP changes for any of three reasons:
1. The full-employment quantity of labor increases
2. The quantity of capital (physical or human) increases
3. Technology advances

9. CHANGES IN POTENTIAL GDP
1. The full-employment quantity of labor
increases:
 The larger quantity of labor employed, the greater is
real GDP.
 With constant capital and technology, potential GDP
increases only if the full-employment quantity of
labor increases.
 Full employment occurs when the demand for labor
is equal to the supply of labor, i.e., when the labor
market is in equilibrium.

10. CHANGES IN POTENTIAL GDP
1. The full-employment quantity of labor
increases:
 For example, A Pepsi bottling plant that employs
100 workers bottles more Pepsi than does an
otherwise identical plant that employs 10 workers.

11. AFRIN KHAN
ID: B-120203137

12. CHANGES IN POTENTIAL GDP
2. The quantity of capital (physical or human)
increases:
 Physical Capital
The accumulation of new capital increases capital per
worker and increases labor productivity.
 Human Capital
Human capital acquired through education, on-the-job
training, and learning-by-doing is the most fundamental
source of labor productivity growth.

13. CHANGES IN POTENTIAL GDP
2. The quantity of capital (physical or human)
increases:
 So the larger quantity of physical capital and human
capital, the greater is potential GDP.
 For example, potential GDP per person in the
capital-rich USA is vastly greater than that in
capital-poor China and Russia.

14. GAZI RAFSAN SHAHAB
ID: B-120203071

15. CHANGES IN POTENTIAL GDP
3. Technological Advances
Technological change—the discovery and the application
of new technologies and new goods—has contributed
immensely to increasing labor productivity.
Technological advances are by far the most important
source of increased production over the past two
centuries.
 As a result of technological advances, one farmer in the
United States today can feed 100 people and in a year one
autoworker can produce almost 14 cars and trucks.