Actual GDP will fall short of potential GDP in the short run if
A) the aggregate supply schedule falls short of actual GDP at the full employment level.
B) existing prices correspond to a level of aggregate demand in excess of potential GDP.
C) existing prices correspond to a level of aggregate demand below potential GDP.
D) the existing capital stock produces aggregate demand that is smaller than the corresponding aggregate supply.
E) none of the above.

Question

Quizplus · Accepted Answer

Actual GDP will fall short of potential GDP in the short run if existing prices correspond to a level of aggregate demand below potential GDP. This situation indicates that the economy is not utilizing its resources fully, leading to a gap between what the economy can produce (potential GDP) and what it is currently producing (actual GDP).

Actual GDP Will Fall Short of Potential GDP in the Short