Over the business cycle,
A)potential GDP fluctuates around its trend.
B)real GDP fluctuates around its trend.
C)only potential GDP fluctuates around its trend and real GDP remains equal to its trend.
D)only real GDP fluctuates around its trend and potential GDP remains equal to its trend.
E)neither real GDP nor potential GDP fluctuate because they just grow smoothly along their trends.

Question

Quizplus · Accepted Answer

Real GDP fluctuates around its trend over the business cycle. Potential GDP, on the other hand, is the maximum amount of goods and services an economy can produce when all resources are utilized efficiently, so it remains constant in the short run.

Over the Business Cycle