Title: Understanding GDP: Actual vs. Potential --- **Question:** Actual GDP will be below potential GDP: - a. when the economy is at full employment. - b. during an economic boom. - c. when resources are fully utilized. - d. during a recession. **Explanation:** Gross Domestic Product (GDP) represents the total value of goods and services produced over a specific time period within a country. Understanding the difference between actual and potential GDP helps economists assess an economy's performance. - **Actual GDP** is the measured output of the economy at any given time. - **Potential GDP** represents the maximum possible output the economy can produce when operating at full capacity, without triggering inflation. Scenarios Explained: - **Full Employment (a):** Typically associated with the economy operating at potential GDP. - **Economic Boom (b):** Often occurs when actual GDP exceeds potential GDP due to excessive demand. - **Fully Utilized Resources (c):** Mirrors a situation where actual GDP meets potential GDP. - **Recession (d):** Characterized by lower economic activity, causing actual GDP to fall below potential GDP. Correct Answer: **d. during a recession.** In a recession, economic activity declines, leading to underutilization of resources, making actual GDP lower than its potential.
Title: Understanding GDP: Actual vs. Potential --- **Question:** Actual GDP will be below potential GDP: - a. when the economy is at full employment. - b. during an economic boom. - c. when resources are fully utilized. - d. during a recession. **Explanation:** Gross Domestic Product (GDP) represents the total value of goods and services produced over a specific time period within a country. Understanding the difference between actual and potential GDP helps economists assess an economy's performance. - **Actual GDP** is the measured output of the economy at any given time. - **Potential GDP** represents the maximum possible output the economy can produce when operating at full capacity, without triggering inflation. Scenarios Explained: - **Full Employment (a):** Typically associated with the economy operating at potential GDP. - **Economic Boom (b):** Often occurs when actual GDP exceeds potential GDP due to excessive demand. - **Fully Utilized Resources (c):** Mirrors a situation where actual GDP meets potential GDP. - **Recession (d):** Characterized by lower economic activity, causing actual GDP to fall below potential GDP. Correct Answer: **d. during a recession.** In a recession, economic activity declines, leading to underutilization of resources, making actual GDP lower than its potential.
Chapter1: Making Economics Decisions
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Transcribed Image Text:Title: Understanding GDP: Actual vs. Potential
---
**Question:**
Actual GDP will be below potential GDP:
- a. when the economy is at full employment.
- b. during an economic boom.
- c. when resources are fully utilized.
- d. during a recession.
**Explanation:**
Gross Domestic Product (GDP) represents the total value of goods and services produced over a specific time period within a country. Understanding the difference between actual and potential GDP helps economists assess an economy's performance.
- **Actual GDP** is the measured output of the economy at any given time.
- **Potential GDP** represents the maximum possible output the economy can produce when operating at full capacity, without triggering inflation.
Scenarios Explained:
- **Full Employment (a):** Typically associated with the economy operating at potential GDP.
- **Economic Boom (b):** Often occurs when actual GDP exceeds potential GDP due to excessive demand.
- **Fully Utilized Resources (c):** Mirrors a situation where actual GDP meets potential GDP.
- **Recession (d):** Characterized by lower economic activity, causing actual GDP to fall below potential GDP.
Correct Answer: **d. during a recession.**
In a recession, economic activity declines, leading to underutilization of resources, making actual GDP lower than its potential.
Expert Solution
Step 1
GDP measures the money value of all final goods and services produced in an economy during a specific period of time.
Potential GDP is the level of GDP that can be achieved. It is the highest level of real GDP that can be sustained over a long term.
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Solved in 2 steps
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