Potential output is the level of real GDP that the economy would produce if all prices, including nominal wages, were inflexible.

Question

Quizplus · Accepted Answer

Potential output refers to the level of real GDP that an economy can produce when it is operating at full capacity, not to the conditions of price inflexibility. It is more about the maximum sustainable level of output rather than the effects of price or wage rigidity.

Potential Output Is the Level of Real GDP That the Economy