Which of the following statements is true?
A)Real GDP fluctuates around potential GDP.
B)Potential GDP fluctuates around real GDP.
C)Real GDP is something like an average of GDP.
D)The growth rate of potential GDP is well known and generally agreed upon.
E)Real GDP cannot be any greater than potential GDP.

Question

Quizplus · Accepted Answer

Real GDP fluctuates around potential GDP because potential GDP represents the long-run trend of the economy, while real GDP is the actual output in a given period. In the short run, real GDP may be above or below potential GDP due to factors such as business cycles or temporary shocks, but in the long run it tends to return to the level of potential GDP.

Which of the Following Statements Is True