If an economy is operating at potential output:

Question

Quizplus · Accepted Answer

When an economy is operating at potential output, it means the economy is at its full capacity, balancing actual output with potential output. In this scenario, if there is a surplus, it is more likely to be a structural surplus, which arises from the underlying fiscal policy settings rather than from cyclical fluctuations in the economy. Cyclical surplus or deficits occur when the economy is above or below its potential output, respectively.

If an Economy Is Operating at Potential Output