Potential output

Definition

Potential output represents the highest level of real GDP an economy can sustainably produce when all resources are fully utilized at their normal levels of efficiency.

Related terms

Aggregate demand (AD): The total demand for goods and services in an economy at a given price level.

Aggregate supply (AS): The total amount of goods and services that all industries in an economy are willing and able to produce at a given price level.

Full employment: A situation where all available labor resources are being utilized, resulting in the lowest possible unemployment rate.