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December 1977

Issues Concerning the Definition, Measurement and Forecasting of Productive Capacity

by Laurence H. Meyer

It would be difficult to identify a more important macroeconomic issue (and one about which there was more disagreement) than recent developments affecting the level and rate of growth in the nation’s productive capacity. Knowledge of the gap between actual and potential output is of immediate relevance to the design of short-run stabilization policy, and recent projections of slower growth in productive capacity and the possible relation to slower growth in capital stock appear to have heightened the interest of both the Administration and Congress in tax reform keyed to expanding Incentives for capital spending.