In long-run equilibrium, what is the relationship between actual and potential output?
A) Actual output can exceed potential output.
B) Potential output can exceed actual output.
C) Actual output must equal potential output.
D) Actual output may be more than potential output or it may be less than potential output.

Question

In long-run equilibrium, what is the relationship between actual and potential output?  
A) Actual output can exceed potential output. 
B) Potential output can exceed actual output. 
C) Actual output must equal potential output. 
D) Actual output may be more than potential output or it may be less than potential output.

Quizplus · Accepted Answer

In the long-run equilibrium, the economy has adjusted to its potential output level where all available resources are being efficiently utilized. Therefore, actual output matches potential output at this point, making option C the correct choice. Options A and D are incorrect because they suggest that actual output can deviate from potential output, which is not the case in long-run equilibrium. Option B is incorrect since potential output cannot exceed actual output in the long run.

In Long-Run Equilibrium, What Is the Relationship Between Actual and Potential