Question

1. Does the rate of actual economic growth have any effect on the rate of potential growth and why may one country experience a faster rate of growth than another?

Answer 1

Yes, there is a two way relation between actual economic growth and potential growth. Actual economic growth impacts potential growth and in turn gets affected by it. For example, if actual growth rate exceeds potential growth rate then the potential growth will have to be revised.

The following are the reasons of why one country experiences faster rate of growth than the oher:

1. Differences in institutional factors like property rights, law and order situations

2. Differences in ownership of natural resources. For example, Arabian countries are successful because of oil reserves

3. Differences in factors like savings rate, development of technology, skill set of the population, educational attainment of the population.