Secular Stagnation

The term secular stagnation refers to a prolonged period of slow economic growth such that the level of economic activity is struck below an economy’s capacity to produce goods and services. In terms of household income, secular stagnation means that the average real earnings per household remain flat or sluggish. Lawrence Summers observes that the current secular stagnation is not unique to the United States. Both Japan during the past 20 years and the European Union during the past decade have suffered from secular stagnation. The situation for the United States is given in Figure 1, which shows that since 2007, actual real gross domestic product (GDP) has been below potential real GDP. Potential real GDP is the maximum amount of goods and services an ...

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