The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.
Figure 8.3

-Refer to Figure 8.3. Potential GDP is greater than real GDP at all output levels:
A) above $300 billion.
B) between $300 billion and $400 billion.
C) above $400 billion.
D) below $300 billion.
E) above $500 billion.

Question

The figure given below represents the equilibrium real GDP and price level in the aggregate demand and aggregate supply model.
Figure 8.3
 
-Refer to Figure 8.3. Potential GDP is greater than real GDP at all output levels:
A) above $300 billion. 
B) between $300 billion and $400 billion. 
C) above $400 billion. 
D) below $300 billion. 
E) above $500 billion.

Quizplus · Accepted Answer

In the given figure, the potential GDP is represented by the vertical line at $400 billion. At any level of output below $400 billion, real GDP is less than potential GDP. Therefore, the correct answer is D, below $300 billion, as the output level is below potential GDP at this point.

The Figure Given Below Represents the Equilibrium Real GDP and Price