Actual output falls below potential output
A)during a recession
B)when aggregate demand exceeds aggregate supply
C)when the natural rate of unemployment exceeds the actual rate of unemployment
D)when the natural rate of unemployment is zero
E)when short run aggregate supply exceeds long run aggregate supply

Question

Quizplus · Accepted Answer

Actual output falls below potential output during a recession when the economy is operating below its full capacity due to a decrease in aggregate demand and a decrease in productive resources. In a recession, businesses reduce production, and unemployment increases, causing actual output to fall below potential output.

Actual Output Falls Below Potential Output