Which of the following statement or statements are correct about potential GDP?
I. Actual real GDP equals potential GDP when the economy is at full employment.
Ii. Real GDP can be less than potential GDP.
Iii. When real GDP equals potential GDP, it also equals nominal GDP.

Question

Quizplus · Accepted Answer

Potential GDP is the level of GDP attained when the economy is operating at full employment, so statement I is correct. Real GDP can be less than potential GDP during a recession or when there is underutilization of resources, so statement II is correct. Statement III is incorrect because nominal GDP is not necessarily equal to real GDP when real GDP equals potential GDP; nominal GDP is affected by the price level.

Which of the Following Statement or Statements Are Correct About