Suppose an economy is operating at its maximum sustainable output rate. Neither recession nor economic boom are present. Which of the following would be true?
A) The economy would be considered at full employment.
B) Actual GDP would exceed potential GDP.
C) Actual unemployment will be less than the natural rate of unemployment.
D) One hundred percent of the labor force is employed.

Question

Quizplus · Accepted Answer

Maximum sustainable output rate refers to the level of output that can be sustained in the long run without causing inflation. At this level, the economy is producing at its potential GDP and all available resources, including labor, are being utilized efficiently. Therefore, the economy would be considered at full employment, which means that there is no cyclical unemployment present. However, there may still be some level of frictional and structural unemployment, which means that the actual unemployment rate may be higher than zero.

Suppose an Economy Is Operating at Its Maximum Sustainable Output