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Chapter 24: Q 26. (page 602)

What is potential GDP?

Short Answer

Expert verified

GDP is a gross domestic product.

Step by step solution

01

Step 1. Introduction

Potential GDP is the highest maintainable level of the real GDP that is produced by an economy.

02

Step 2. Explanation

At this level of GDP, the labor is fully employed, physical capital and technology are also used in full. In short run an economy can produce more than potential GDP but it is not able to do that in the long run.

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Most popular questions from this chapter

The imaginary country of Harris Island has the

aggregate supply and aggregate demand curves as Table 24.3shows.

a. Plot the AD/AS diagram. Identify the equilibrium.

b. Would you expect unemployment in this economy to be relatively high or low?

c. Would you expect concern about inflation in this

economy to be relatively high or low?

d. Imagine that consumers begin to lose confidence about the state of the economy, and so AD becomes lower by 275at every price level.

Identify the new aggregate equilibrium.

e. How will the shift in AD affect the original

output, price level, and employment?

Suppose, after five years of sluggish growth, the European Union's economy picks up speed. What would be the likely impact on the U.S. trade balance, GDP, and employment?

How is the natural rate of unemployment illustrated in an AD/AS model?

What is the Keynesian zone of the SRAS curve? How much is the price level likely to change in the Keynesian zone?

In your view, is the economy currently operating in the Keynesian, intermediate or neoclassical portion of the economy’s aggregate supply curve?

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