Digging a little deeper, most central banks including the Bank of Canada-, interpret an economy’s actual output growth, its gross domestic product (GDP), as being determined in the short run by the forces moving aggregate demand.
An economy’s potential output growth, meanwhile, reflects the evolution of aggregate supply over a longer horizon (Chart 1).i Aggregate demand growth tends to move with short-term factors—such as shocks to foreign demand and exports—which may trigger cyclical movements in, for example, inventories and consumer purchases of durable goods. Aggregate supply growth is affected more by the slow-moving forces that I noted earlier.