Moreover, the heightened competitive environment fostered by an increasingly global trading system, as I noted earlier, may force firms to be more innovative, further boosting the level, and perhaps even the growth rate, of productivity.
The expansion in aggregate supply and national income implied by these forces in turn leads to a corresponding rise in aggregate demand; in particular, households are able to increase their standard of living by consuming more goods and services, both imported and domestic. And it is the balance between potential supply and aggregate demand that concerns monetary policy.