Potential GDP is the level of aggregate output ?
Correct answer: C. that can be sustained in the long run without inflation
- A. that can be produced if structural unemployment is zero
- B. that can be produced at a zero-unemployment rate
- C. that can be sustained in the long run without inflation
- D. that can be sustained in the long run, if the inflation rate is zero
Explanation
Potential GDP is the economy’s sustainable output when resources are normally utilised and inflation is stable rather than accelerating. It does not require zero unemployment, because frictional and structural unemployment can remain.
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