Which of the Following Statements About Potential GDP Is False

question 72

Multiple Choice

Which of the following statements about potential GDP is false?

• A)The Fed's goal is to have equilibrium GDP close to potential GDP.
• B)When GDP is at potential, cyclical unemployment is zero.
• C)It occurs when firms are producing at their maximum level of output.
• D)It occurs when firms are producing with a workforce of normal size working normal hours.

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Definitions:

Economic Cost

A payment that must be made to obtain and retain the services of a resource; the income a firm must provide to a resource supplier to attract the resource away from an alternative use; equal to the quantity of other products that cannot be produced when resources are instead used to make a particular product.

Average Total Cost

The total cost of production divided by the quantity produced, representing the cost per unit of output.

Average Total Costs

A rephrasing: The sum of all production costs divided by the quantity of goods produced, indicating the average cost for each unit.

Average Variable Costs

This represents the total variable costs (costs that vary with the production level) divided by the quantity of output produced.