Over the business cycle,
A)only real GDP fluctuates around its trend and potential GDP remains equal to its trend.
B)real GDP fluctuates around its trend.
C)only potential GDP fluctuates around its trend and real GDP remains equal to its trend.
D)neither real GDP nor potential GDP fluctuate because they just grow smoothly along their trends.
E)potential GDP fluctuates around its trend.

Question

Quizplus · Accepted Answer

Real GDP fluctuates around its trend due to the business cycle, while potential GDP represents the economy's capacity and grows more smoothly.

Over the Business Cycle