Asked by Kimberly Valencia-Franco on Jun 20, 2024
Verified
The potential output of an economy is:
A) the output level at which inflation is very high.
B) the output level at which nominal GDP is equal to real GDP.
C) less than the full-employment rate of output.
D) the output level at which total unemployment is zero.
E) also referred to as the natural rate of output.
Potential Output
The economy’s maximum sustainable output, given the supply of resources, technology, and rules of the game; the output level when there are no surprises about the price level.
Natural Rate
The natural rate refers to the long-term unemployment rate that an economy experiences under normal conditions, unaffected by short-term cyclical fluctuations.
Full-Employment
A scenario where an economy utilizes all accessible labor resources in the most optimized manner.
- Comprehend the concept of potential output and the natural rate of output in an economy.
Verified Answer
WO
William OsunaJun 22, 2024
Final Answer :
E
Explanation :
The potential output of an economy is also referred to as the natural rate of output. It is the level of output an economy can produce at full employment and without causing inflationary pressures. Therefore, choice E is the correct answer. Choices A, B, C, and D are incorrect because they do not accurately describe the concept of potential output.
Learning Objectives
- Comprehend the concept of potential output and the natural rate of output in an economy.