Showing papers on "Potential output published in 1977"

Energy Resources and Potential GNP

Abstract: dramatic change in supply conditions for energy resources since 1973 had a substantial effect on the productive capabilities of the U.S. economy. Higher prices of energy resources, relative to the prices of labor and capital resources, resulted in a loss of economic capacity and higher output prices. It has been estimated that four to five percentage points of both the higher price level and reduction in national output in 1974 were due to the increased scarcity of energy resources entailed by the quadrnpling of OPEC petroleum prices.’ The loss of national output because of energy market developments was a permanent loss. The energy price revision reduced the effective supply of resources available. Thus, the rate of output achievable by fully utilizing the nation’s resources, the “potential” output of the economy, was lowered. Conventional methods of measuring the economy’s potential have focused primarily upon the availability and productivity of labor resources. More recently such efforts have also attempted to account for the availability and productivity of capital resources. Estimates of potential output which consider the relationship of only capital and labor resources to national output are not well suited to the task of accounting for the effects of changes in the availability or cost of energy resources. Nevertheless, the Council of Economic Advisers (CEA) has recently pointed to evidence which indicates that a permanent drop in the productivity of U.S. capital and labor resources may have occurred after 1973. The CEA suggests that this drop is due to the higher cost of energy resources. 2

Price Determination Processes for Agricultural Sector Models

Abstract: Until recently, traditional subsector model analysis for agricultural products had focused largely on supply-acreage considerations. This was particularly true of the crops sector, where historically supply has outstripped demand, leaving market prices at support levels. Supply response equations often used the support price as the supply price, reducing even further the role of market prices. However, the disappearance of excess capacity from agriculture has shifted attention to the demand-price side of the ledger. Recent experience with worldwide grain price inflation and its impact on domestic livestock prices has reinforced the need to consider further the price determination mechanism for agricultural products. Traditional concern with supply response in an environment of excess capacity centered around the farm income problem, i.e., the relative decline of rural America. Analysis of this problem has been the prime concern of agricultural policy makers since the 1930s. On the other hand, high food prices have been the source of recent political concern, not only because of their direct effect on the cost of living but also because of "secondround" inflationary effects due to increased wage demands. These higher wages in turn lead to inflationary pressures of their own in the nonfood sectors of the economy. Hence, price determination is an appropriate topic for a session on econometric models since, as will be shown, the nonfarm economy plays a large role in that process. Economists, both agricultural and otherwise, have historically paid relatively little attention to the price determination process. For the nonfarm sector, the first serious effort at price modeling came from the EcksteinFromm price equation. A simplified version of macro model price behavior is as follows. Demand determines output; the difference between actual and potential output (i.e., unemployment) and lagged prices determine wages; wages and output determine prices. Various refinements of this basic approach are the mainstay of most aggregate models, although some have been revamped with a stage-of-processing model along the lines developed by Popkin. The price determination process for agricultural models can be summarized as fol-

Potential Output: Recent Issues and Present Trends

Abstract: Potential output measures the real GNP that would be associated with operating the economy at some specified level of labor utilization. The concept offers answers to two basic types of questions: what would be the level of GNP if unemployment was at a specified level? (Or what would unemployment be if GNP were at some specified level?) And what will unemployment be at some point in the future if GNP grows at some specified rate? (Or what will GNP be if some specified unemployment target is achieved at some point in the future?) In the process of developing the concept of potential and providing the needed estimates for answering these questions, we have gained a number of insights into the cyclical characteristics of the economy. Okun’s law, which summarizes many of these characteristics in linking marginal output to marginal changes in unemployment rates, is probably the most robust macroeconomic relationship yet developed. Despite the general success of the original potential concept and related relationships such as Okun’s law, several developments of the l97Os have cast doubt on traditional methods of measuring the nation’s

Estimates of the High-Employment Budget and Changes in Potential Output

Abstract: 1. ,i NE of the more novel approaches to the problem of assessing the impact of the Federal budget on economic activity was the development of the concept of the high-employment budget. The purpose of this concept was to standardize the budget position on some high-employment norm amid thereby remove the effect of variations in economic activity on the measured budget surplus or deficit. Proponents of the highemployment budget argue that estimation of the Federal budget at an assunsed full—employment level of activity pro~’idesa better measure of tile impact of the budget on the eeononiy than the actual surplus or deficit (see Chart I).