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.

Answer 1

Answer: Option B

Explanation:

Potential real GDP is the level of output that comes due to the rising inflation. Potential GDP is significant as the people who frame the policies of the country utilize the differences that arrive between the potential GDP and the gaps to find what the economy requires whether reduced or increased money flow.

It is assumed that the potential real GDP can be attained when the level of GDP is attained it means that all the firms are producing at the same capacity.