The relationship between real GDP and potential GDP over the business cycle can be best summarized by which of the following statements?
A)Real GDP fluctuates around potential GDP.
B)Real GDP is always equal to potential GDP.
C)Real GDP cannot be greater than potential GDP.
D)Real GDP cannot be less than potential GDP.
E)Real GDP cannot be equal to potential GDP.

Question

Quizplus · Accepted Answer

Real GDP fluctuates around potential GDP over the business cycle. During expansions, real GDP exceeds potential GDP, while during recessions, real GDP falls below potential GDP.

The Relationship Between Real GDP and Potential GDP Over the Business