Institute material–>Volume 3–>Pg.65 4.1.5.3 “If unemployment is relatively high and there is spare capacity, then a rate of GDP growth higher than the trend rate will be tolerated for a while…” explain… 4.2.3 Institute material–>Volume 3–>Pg.74 1. Fiscal policy is sound - how will devaluing currency help in scaling back high foreign debt…explain
Here is what I think. If the economy does not have spare capacity it means that GDP growth rate higher than trend will lead to inflationary pressure. On the other hand if there is spare capacity inflation will not be an issue and therefore growth rate higher than trend will lead to higher employment and higher GDP. In the second part I believe that they are referring to the fact that devaluation makes imports more expensive and exports cheaper. This should lead to a correction in the current account deficit. A devaluation also makes foreign borrowing more expensive