Potential GDP is the value of GDP that can be calculated if we assume that
A)there are no measurement errors
B)the unemployment rate is zero
C)the inflation rate is zero
D)GDP has been adjusted for inflation
E)the capital stock is working at full capacity and we have full employment

Question

Quizplus · Accepted Answer

Potential GDP is the maximum level of GDP that can be produced when all factors of production are being utilized at their full potential. This means that there is no unemployment and the capital stock is working at full capacity. Option E is the correct choice as it reflects these conditions. Choices A, B, C, and D do not fully capture the concept of potential GDP.

Potential GDP Is the Value of GDP That Can Be