Question

Potential real GDP is A. the level of GDP attained when only some firms have excess capacity. B. the level of GDP attained when all firms are producing at capacity. C. the level of GDP attained when all firms have excess capacity. D. the level of GDP attained when most firms are producing at capacity and unemployment is low. Potential real GDP ▼ grows over time remains constant over time declines over time .

Answer 1

Answer:

The correct answer is option B.

Potential real GDP grows over time.

Explanation:

Potential GDP can be defined as the highest level of real GDP that can be sustained for a long period. It is the level of GDP that is attained when all the firms are producing at capacity.

There is no excess capacity left. All the labor force is being fully employed and capital is fully utilized. It grows over time as technology improves and the labor force increases.