Editing Potential output (section)

==Limits to output==
Natural (physical, etc) and institutional constraints impose limits to growth. 

If actual GDP rises and stays above potential output, then, in a [[free market]] economy (i.e. in the absence of wage and [[price controls]]), [[inflation]] tends to increase as [[demand]] for [[factors of production]] exceeds [[supply and demand|supply]]. This is because of the [[Finite set|finite]] supply of workers and their time, of [[capital equipment]], and of [[natural resources]], along with the limits of our [[technology]] and our [[management]] skills. Graphically, the expansion of output beyond the natural limit can be seen as a shift of production volume above the optimum quantity on the [[average cost]] curve. Likewise, if GDP persists below natural GDP, inflation might decelerate as suppliers lower prices in order to sell more products, utilizing their excess production-capacity.

Potential output in [[macroeconomics]] corresponds to one [[Point (geometry)|point]] on the [[production–possibility curve]] for a society as a whole, reflecting its natural, technological, and institutional constraints.