Potential real GDP estimates the real GDP under the assumption that the economy is at full employment and an average number of hours will be worked during the year at an average output per worker-hour.

Question

Quizplus · Accepted Answer

Potential real GDP is indeed an estimate of the output level for an economy assuming full employment (where all available labor resources are being used efficiently) and that workers are working an average number of hours with an average productivity rate. This concept is used to assess the maximum sustainable output of an economy without leading to inflation.

Potential Real GDP Estimates the Real GDP Under the Assumption