The level of real GDP in the long run is
A)potential GDP.
B)affected by changes in the price level.
C)determined solely by aggregate demand.
D)the same as the level of nominal GDP in the long run.

Question

Quizplus · Accepted Answer

The level of real GDP in the long run is potential GDP because it represents the maximum output that an economy can produce with its available resources and technology, without causing inflationary pressures. It is determined by the factors of production (land, labor, capital, and entrepreneurship) and their productivity, which can change over time due to technological progress, education and training, population growth, and other factors. The level of real GDP is not affected by changes in the price level, as it is measured in constant prices (adjusted for inflation). Aggregate demand can influence the short-term fluctuations of real GDP around its potential level, but it cannot permanently raise it above or below its potential level. Nominal GDP includes both the price level and the level of output, and can differ from real GDP due to inflation or deflation.

The Level of Real GDP in the Long Run Is