Which of the following statement or statements are correct about potential GDP?
I.Actual real GDP equals potential GDP when the economy is at full employment.
Ii.Real GDP can be less than potential GDP.
Iii.When real GDP equals potential GDP,it also equals nominal GDP.

Question

Quizplus · Accepted Answer

Option I is correct because potential GDP is the level of output that can be produced when all factors of production (labor, capital, land, and entrepreneurship) are utilized at their normal rates. When an economy is operating at full employment, it is using all available workers and other resources in the most efficient way possible, so actual real GDP equals potential GDP.
Option II is correct because the economy may operate below its potential due to various reasons such as unemployment, underemployment, and inefficiencies in the market. In such a situation, actual real GDP will be less than potential GDP.
Option III is incorrect because real and nominal GDP are two different measures. Nominal GDP includes the effects of inflation, whereas real GDP adjusts for inflation. Therefore, they can be equal only by chance.

Which of the Following Statement or Statements Are Correct About