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Chapter 11: 26 (page 292)

What is potential GDP?

Short Answer

Expert verified

Potential GDP is at full employment, an economy can produce its maximum quantity of production.

Step by step solution

01

Concept introduction 

Gross Domestic Product is the market value of all final goods being produced and services being provided.

02

Explanation

Potential GDP attempts to estimate the optimum output level or the highest level of output an economy can achieve or sustain over time, rather than just representing the final market value of all commodities and services manufactured within the country's domestic border. The concept of potential GDP revolves around the concept of sustainability.

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