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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

On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because the product in question is now relatively less expensive than substitute products. Explain why aggregate demand does not increase for the same reason in response to a decrease in the aggregate price level. In other words, what causes total spending to increase if it is not because goods are now cheaper?

What are some of the ways in which exports and imports can affect the AD/AS model?

What are the economic reasons why the AD curve slopes down?

Does Say’s law apply more accurately in the long run or the short run? What about Keynes’ law?

Suppose the Federal Reserve begins to increase the supply of money at an increasing rate. What impact would that have on GDP, unemployment, and inflation?
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