The Line Showing Potential GDP Is a Vertical Straight Line

question 33

Multiple Choice

The line showing potential GDP is a vertical straight line because

• A) economists are unsure about how to determine potential GDP.
• B) it represents the minimum level of real GDP in a recession.
• C) when nothing else changes, a higher price level has no effect on real GDP.
• D) there is only one level of full employment at any point in time.
• E) the aggregate supply curve is upward sloping.

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Definitions:

Gross Domestic Product

The monetary value of all finished goods and services made within a country during a specific period.

Interest Rate

The percentage charged on a loan or paid on savings over a certain period of time, reflecting the cost of borrowing or the return on savings.

Investment

An asset or item acquired with the goal of generating income or appreciation in value.

Financial Securities

Financial instruments representing some type of financial value, including stocks, bonds, and options, which can be bought and sold in financial markets.