A general view shows hotels in Beirut, Wednesday, Nov. 1, 2017. (The Daily Star/Mohammad Azakir)
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So adding up the growth rate of labor and the potential growth rate of labor productivity, the potential growth rate of output becomes 5.5 percent (2.5 percent plus 3 percent).Having established the potential growth rate of output at 5.5 percent, the output gap for 2018 is the difference between the potential output for 2018 and the actual GDP figure of the same year. As a first step, potential GDP for 2018 is reached by selecting the optimum output year for Lebanon and extending its value at the potential growth rate to arrive at current (2018) potential GDP. Given that GDP in 1971 was $1.67 billion, and that the resulting potential growth rate of nominal GDP is 8.5 percent (5.5 percent plus 3 percent), then the 2018 potential GDP (for a coverage period of 47 years, from 1971 to 2018) is attained by multiplying $1.67 billion by 1.085 (1 plus 8.5 percent) raised to the power of 47 . The difference is the output gap, which is equal to $20.85 billion, or 27 percent of potential GDP.As a result, by 2029, actual GDP would have caught up and converged with potential GDP, and real GDP growth would then resume at the potential rate of 5.5 percent with full employment totally restored and maintained.
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