If real GDP is less than potential GDP, we would expect
A)the exchange rate of the Canadian dollar to rise.
B)potential GDP to increase.
C)the money wage rate to fall.
D)the money wage rate to rise.
E)potential GDP to decrease.

Question

Quizplus · Accepted Answer

When real GDP is less than potential GDP, it indicates that the economy is not operating at full capacity, leading to higher unemployment. This situation puts downward pressure on wages as there is more labor supply than demand, causing the money wage rate to fall.

If Real GDP Is Less Than Potential GDP, We Would