When Actual Output Is Less Than Potential Output There Is

question 115

Multiple Choice

When actual output is less than potential output there is a(n) :

• A)budget deficit.
• B)budget surplus.
• C)trade deficit.
• D)recessionary gap.

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Definitions:

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.

Potential Output

Represents the highest level of real Gross Domestic Product (GDP) that can be sustained over the long term without increasing the rate of inflation.