In the short run, if the economy is at full employment then the quantity of real GDP
A) is equal to potential GDP and the unemployment rate is equal to the natural unemployment rate.
B) does not necessarily equal potential GDP but the unemployment rate is equal to the natural unemployment rate.
C) exceeds potential GDP and the unemployment rate is less than the natural unemployment rate.
D) is equal to potential GDP but the unemployment rate is less than the natural unemployment rate.
E) is equal to potential GDP but the unemployment rate does not necessarily equal the natural unemployment rate.

Question

Quizplus · Accepted Answer

Full employment implies that the economy is producing at its maximum sustainable level of output, which is potential GDP. Therefore, in the short run, if the economy is at full employment, the quantity of real GDP is equal to potential GDP. Additionally, full employment implies that there is no cyclical unemployment, and the unemployment rate is equal to the natural unemployment rate. Therefore, option A is the correct answer.

In the Short Run, If the Economy Is at Full