When an economy experiences sustained growth in real GDP,
A)actual GDP is greater than potential GDP.
B)actual GDP is less than potential GDP.
C)potential GDP is likely to be increasing.
D)factor prices are likely to be decreasing.
E)wage rates will decrease slowly as factor-utilization rates decrease.

Question

Quizplus · Accepted Answer

When an economy experiences sustained growth in real GDP, potential GDP is likely to be increasing. This means that the economy is becoming more efficient and productive, which results in a higher potential output level. As a result, the economy is able to sustain higher levels of real GDP over time. Both actual GDP and potential GDP may increase during sustained economic growth, but potential GDP growth is the key factor that allows the economy to sustain the higher levels of real GDP. Therefore, choices A, B, D, and E are incorrect.

When an Economy Experiences Sustained Growth in Real GDP