What does the potential output of an economy represent?
A) the level of output produced when the real wage equals the nominal wage
B) the level of output produced when the price level is constant
C) the level of output produced when the expected price level equals the unemployment rate
D) the level of output produced when the expected price level equals the actual price level

Question

What does the potential output of an economy represent?  
A) the level of output produced when the real wage equals the nominal wage 
B) the level of output produced when the price level is constant 
C) the level of output produced when the expected price level equals the unemployment rate 
D) the level of output produced when the expected price level equals the actual price level

Quizplus · Accepted Answer

Potential output is the level of output produced when the economy is at full employment, and the expected price level equals the actual price level, indicating no unexpected inflation or deflation.

What Does the Potential Output of an Economy Represent