When actual GDP does not rise as fast as potential GDP, the economy most likely will experience

Question

Quizplus · Accepted Answer

When actual GDP does not rise as fast as potential GDP, it means the economy is not producing at its full capacity. This might lead to a recession, which is a decline in economic activity characterized by negative growth in GDP, rising unemployment, and falling income levels. In this situation, businesses are likely to lay off workers, leading to higher unemployment rates, which, in turn, leads to lower consumer spending and a slowdown in economic growth.

When Actual GDP Does Not Rise as Fast as Potential