§ Mr. Deakinsasked the Chancellor of the Exchequer how he calculates the productive potential of the economy.
§ Mr. NottPast trends in productive potential can be estimated from movements of gross domestic product, the working population and hours of work. Productive potential is assumed to differ from actual output mainly because of cyclical variations in the intensity with which the resources of the economy are used. Statistical techniques are used to assess the effects of cyclical variations and hence to separate the broad trend of potential output. The uncertainty of the calculations is such that estimates are most suitably made to cover a period of several years: such estimates are valid only if there is no sharp change in the rate at which productivity grows over time.