Define potential GDP. Under what circumstances does actual real GDP fall short of potential GDP, equal potential GDP, and exceed potential GDP?
What will be an ideal response?
Potential GDP is the level of real GDP that the economy produces when it is at full employment. Potential GDP can be contrasted with actual real GDP, the amount of real GDP the country actually produces. Actual real GDP can be less than potential GDP when the economy is producing at less than full employment, that is, when there is less than full employment in the labor market. Actual real GDP equals potential GDP when the economy is producing at full employment. Actual real GDP can exceed potential GDP temporarily as the economy approaches and then recedes from a business cycle peak.
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The assertion that income accrues to people as a consequence of interactions among suppliers and demanders
A) amounts to an endorsement of the existing system. B) amounts to an endorsement of the pattern of income distribution. C) ignores the fact that the interactions are often unfair. D) offers a way of approaching the issue of income distribution.
In the Solow model, the faster growth of output that results from an increase in the saving rate is temporary, because ________
A) of diminishing marginal product of capital B) with a larger stock of capital, consumption is encouraged more than investment C) the rising capital stock depreciates at a faster rate D) the economy settles into a steady state in which saving no longer rises
At an output level of 100, a monopolist faces MC = 15 and MR = 17. At output level q = 101, the monopolist faces MC = 16 and MR = 15. To maximize profits, the firm
A) should produce 100 units. B) should produce 101 units. C) The firm cannot maximize profits. D) The firm is not a monopoly.
Which of the following types of countries has experienced increasing inequality in recent decades?
A. Poor countries B. Rich countries C. Countries with low economic growth D. All of these have experienced increasing inequality.