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December 1977

Comments on Rasche and Tatom

by Frank De Leeuw

These two studies have performed a timely service in reminding us that a major rise in natural resource costs can have a sizable negative impact on potential GNP. The purpose of this note is not to question that central proposition. Rather, it is to argue that (1) the impact on potential GNP takes place only gradually as production techniques and consumption patterns change, not all at once as these studies imply, and (2) that the ultimate impact may not be as large as the 4 or 5 percent estimated in these studies.