Which of the following statements about potential GDP is true?
A)Potential GDP is not equal to the maximum level of real GDP.
B)Potential GDP is equal to the downward trend in real GDP.
C)Potential GDP represents the GDP a country will experience when the real interest rate is equal to zero.
D)Potential GDP represents the long-run tendency of the economy to grow.
E)Potential GDP is equal to the average level of real GDP.

Question

Quizplus · Accepted Answer

Potential GDP represents the long-run tendency of the economy to grow, meaning the level of GDP that the economy would reach if all resources were fully employed. It is not equal to the maximum level of real GDP, as there may be short-term fluctuations above or below potential GDP due to factors such as business cycles. It is also not equal to the downward trend in real GDP, as potential GDP does not necessarily imply a decline. The real interest rate does not have a direct relationship with potential GDP, and potential GDP is not equal to the average level of real GDP.

Which of the Following Statements About Potential GDP Is True