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0 “If actual growth is higher than the long-run trend rate, then we get inflationary pressures. If growth is below the long-run trend rate, we get a negative output gap and inflation.”
in hypothesis, narrowing a potential output gap would require decreasing the GDP Deflator & PCE Price Index, while also improving Labor Productivity, Participation Rate and Weekly Hourly worked on average. That depends on investments where there are aggregate supply deficiencies.
The United States has lately decided to give impulse to manufacturing microchips production in the United States, that’s an investment that creates employment but that crucially could narrow output gap in hypothesis, at least aiming at growing potential output.
