The economy's capacity to produce is defined in such a way that
A) output cannot exceed capacity
B) the growth of potential GDP corresponds to the economy's long run trend
C) the economy is always operating at its current potential
D) there is always a degree of slack or inefficiency in production, so output is always below capacity
E) when workers work overtime, capacity expands

Question

Quizplus · Accepted Answer

The economy's capacity to produce is defined as its potential GDP, which corresponds to its long-run trend of growth. It is not a fixed amount but rather can be influenced by changes in technology, capital investment, and labor force participation. However, it is important to note that even when the economy is operating at its potential, there may still be some unused resources or inefficiencies in production that prevent it from reaching its full capacity.

The Economy's Capacity to Produce Is Defined in Such a Way