Be the rate at which the productive capacity of the economy — its potential for production —

Expands. It could equally be taken as a measure of the growth of the supply side. It is also interpreted

As the long-term growth rate, as it assumed that in the long term the economy must perform

According to its potential. The rate is affected by growth in the labour force, and the growth in

Productivity, itself primarily determined by technology and social institutions. Actual growth in

Any year may exceed, or underperform trend growth, usually because fluctuations in aggregate

Demand affect actual gross domestic product more than they affect the long-term capacity of the

Economy to produce things.

Trend growth is a useful benchmark for whether the economy is growing too quickly (overheating)

or too slowly. In the UK budget in 1997 the trend growth rate was officially declared to be “between

2 and 2.75 per cent.” That is a number close to the long-term average growth rate. A similar estimate

Is regarded as reasonable for most highly developed economies, but it recognized that developing

Countries may outperform this level for a sustained period of catch-up. Trend growth is a concept

More often used by policy-makers, than theoretical economists. It has largely been ignored by the

Different theories of growth, and should not be confused with the natural rate of growth.