Potential GDP refers to the maximum level of output an economy can sustain over the long term without causing inflation to rise. It is not about achieving 100% employment or reaching historical maximums, but rather about balancing growth with the available resources in a way that does not trigger inflation.

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Potential GDP Is

Question 198

Multiple Choice

Potential GDP is

A) the maximum GDP that an economy actually achieves throughout its entire history.
B) the level of GDP achieved during periods when 100 percent of the labor force is employed.
C) a goal that can never be achieved by the economy.
D) the maximum amount of GDP that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation.

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