Question

Potential GDP :________A. Is the level of real GDP attained when all firms are producing at capacity. B. Falls below actual real GDP in recessions. C. Is the maximum output firms are capable of producing. D. Is the value of final goods and services evaluated at​ base-year prices.

Answer 1

Answer:

c

Explanation:

Answer 2

Answer:

Potential GDP is:

C. Is the maximum output firms are capable of producing.  

Explanation:

Potential gross domestic product (GDP) is defined in the OECD's Economic Outlook publication as the level of output that an economy can produce at a constant inflation rate. Potential output occurs when an economy produces what it can using all of its resources. These resources include technology, equipment, natural resources, and employees. Potential output can also be looked at in terms of supply and demand.

Although an economy can temporarily produce more than its potential level of output, that comes at the cost of rising inflation.

The changes in potential GDP are caused by the increase in quantity of physical or human capital So the larger quantity of physical capital and human capital, the greater is potential GDP.

The difference between actual and potential GDP is that potential GDP is the level of production of goods and services that the economy is capable of if its workforce is fully employed and its capital stock is fully utilized. Actual GDP is the actual output of goods and services. Real potential GDP is the CBO's estimate of the output the economy would produce with a high rate of use of its capital and labor resources. The data is adjusted to remove the effects of inflation.