Briefly define real and potential GDP, and explain the relationship between real GDP and potential GDP. How can we measure potential GDP?

What will be an ideal response?


Real GDP is the actual level of GDP, adjusted for inflation. Potential GDP is what the GDP would be if the economy was fully employed. Because of the business cycle, real GDP fluctuates around potential GDP. Thus real GDP is sometimes greater than potential GDP, sometimes smaller than potential GDP, and sometimes equal to potential GDP. Over time, the larger-than-normal and smaller-than-normal values cancel out and we can estimate potential GDP by using the average of real GDP.

Economics

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What will be an ideal response?

Economics

________ are the owners of a corporation

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Economics

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Economics