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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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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