Trend rate of growth
Definition
The trend rate of growth is the rate of growth of real GDP that an economy can sustain without causing major economic problems, such as price and wage inflation, and trade difficulties.
If an economy grows at its tend rate, there will be no output gaps. If the
actual rate is higher than the trend rate, then a
positive output gap exists with the likelihood of price and wage
inflation, and current account trade difficulties. If the trend rate is
above the actual rate, a negative output gaps exists, with the likelihood of
cyclical unemployment and
the possibility of recession.
The NRU can also be thought of as the rate of unemployment that exists when the economy is operating at full capacity.
