The difference between actual real GDP and potential GDP
A) decreases as the unemployment rate rises.
B) increases as the unemployment rate rises.
C) increases as the employment rate rises.
D) decreases as the labor force increases.

Question

Quizplus · Accepted Answer

Actual real GDP is the current level of output in the economy, while potential GDP is the maximum level of output an economy can produce with its existing resources and technology. As the unemployment rate rises, actual real GDP decreases because there are fewer workers producing output. At the same time, potential GDP remains the same or may even increase if there are unused resources in the economy. Therefore, the difference between actual real GDP and potential GDP increases as the unemployment rate rises.

The Difference Between Actual Real GDP and Potential GDP