Explain the relationship between real GDP and potential GDP and between the unemployment rate and the natural unemployment rate as the economy moves through a business cycle
What will be an ideal response?
Potential GDP is the level of GDP when the economy is at full employment. Real GDP is the level of GDP and can be above or below potential GDP depending on whether employment is above or below full employment. The natural unemployment rate is the unemployment rate when the economy is at full employment. The unemployment rate can be above or below the natural unemployment rate. In a recession, real GDP is less than potential GDP and unemployment exceeds the natural rate. In an expansion, real GDP is greater than potential GDP and unemployment is less than the natural rate.
You might also like to view...
Define real shocks, define nominal shocks, and give an example of each
What will be an ideal response?
In the short run, product differentiation enables firms in monopolistically competitive markets to:
A. act like a monopolist. B. sell a standardized good. C. collude with competing firms to set prices. D. act like perfectly competitive firms.
At one unit of output AVC is
A. zero. B. less than marginal cost. C. infinite. D. equal to marginal cost.
Viewed from the perspective of a U.S. beef farmer, gasoline price variability can be viewed as a source of
A. demand and supply variability, because an increase in gasoline costs drive up corn costs and corn is what farmers feed their cattle. B. demand variability, because an increase in gasoline costs drive up corn costs and corn is what farmers feed their cattle. C. static variability. D. supply variability, because an increase in gasoline costs drive up corn costs and corn is what farmers feed their cattle.