Economic activity that is above potential outputsignals that potential output is about to increaseoccurs near the trough, rather than the peak, of a business cycleis not possibleresults from an economic shock to which the economy has yet to adjust fullynone of the above

Answered: Economic activity that is above…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Economic activity that is above potential output
signals that potential output is about to increase
occurs near the trough, rather than the peak, of a business cycle
is not possible
results from an economic shock to which the economy has yet to adjust fully
none of the above

Expert Solution

Step 1

“Potential output is defined as the maximum amount of goods and services an economy can produce or turn out in the most efficient way that means when it is at its full capacity.”

During boom period the economy is above potential output resulting in positive gap leading to inflation and it creates an economic shock from which the economy has to deal.

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