Potential GDP is the maximum amount of GDP that can be produced by an economy while avoiding inflationary pressure caused by shortages of labor, capital, land, and entrepreneurship. It is not a goal that cannot be achieved or the maximum GDP achieved throughout the entire history of an economy, nor is it tied to a specific level of employment.

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Potential GDP Is

Question 199

Multiple Choice

Potential GDP is

A) a goal that can never be achieved by the economy.
B) the maximum GDP that an economy actually achieves throughout its entire history.
C) the maximum amount of GDP that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation.
D) the level of GDP achieved during periods when 100 percent of the labor force is employed.

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