The consequences of an economy operating below its potential level include:

Question

Quizplus · Accepted Answer

When an economy operates below its potential level, it means that there is unused productive capacity, leading to lower levels of output and employment. This can cause higher unemployment and an overall reduction in economic activity, leading to lower standards of living in the long run. Additionally, the lack of investment and technological progress can lead to a lower potential GDP growth rate, further reducing the future standards of living. Therefore, option D is the correct choice.

The Consequences of an Economy Operating Below Its Potential Level