Natural gross domestic product

Natural gross domestic product (natural GDP) is defined as the optimal production capacity of a territory's economy given natural and institutional constraints. It is also called "potential output." Once the actual real gross domestic product exceeds natural GDP, inflation accelerates as demand exceeds supply. Likewise, if GDP is below natural GDP, inflation will decelerate as suppliers lower prices to fill their excess production capacity.

Generally speaking, most central banks and other economic planning agencies attempt to keep GDP at or around natural GDP level. This can be done in a number of ways: the two most common strategies are expanding or contracting the government budget (fiscal policy), and altering the money supply to change consumption and investment levels (monetary policy).