Real GDP fluctuates around potential GDP because the economy experiences business cycles and fluctuations in aggregate demand and supply, causing deviations from potential output. Potential GDP represents the level of output an economy can produce when all resources are fully employed, and real GDP can be above or below potential GDP depending on the state of the economy.

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Real GDP

Question 115

Multiple Choice

Real GDP

A) fluctuates around potential GDP.
B) fluctuates from year to year but is always below potential GDP.
C) equals potential GDP in the base year.
D) grows at a constant 3 percent per year.
E) equals potential GDP when the price level is constant.

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