When the growth rates of actual and potential GDP diverge, they usually diverge because
A)actual GDP growth equals potential GDP growth.
B)actual GDP growth falls below potential GDP growth.
C)potential GDP growth rates fall below actual GDP growth rates.
D)potential GDP growth rates fluctuate while actual GDP growth rates remain stable.

Question

Quizplus · Accepted Answer

If actual GDP growth falls below potential GDP growth, it means that the economy is not operating at its full capacity and potential. This can be due to factors such as a decrease in productivity, a decrease in consumer spending, or a decrease in investment. When potential GDP growth rates fall below actual GDP growth rates, it means that the economy is operating beyond its full capacity, leading to inflationary pressures.

When the Growth Rates of Actual and Potential GDP Diverge