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If actual GDP > Potential GDP are we in boom (expansion) or bust (recession)? If actual...

If actual GDP > Potential GDP are we in boom (expansion) or bust (recession)?

If actual GDP > potential GDP is unemployment higher than NAROU or lower?

What is the danger of actual GDP > potential GDP?

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Answer #1

If actual GDP > Potential GDP are we in a boom (expansion) or bust (recession)?

AGDP>PGDP means the economy is in boom where the output is using resources above potential level.

If actual GDP > potential GDP is unemployment higher than NAROU or lower?

The unemployment rate is equal to NAROU at potential output level, but if the economy is at above potential GDP, then the unemployment rate is below NAROU because the economy is using resources above potential level means there will be work for everyone as well as many of them much working overtime.

What is the danger of actual GDP > potential GDP?

A boom increases inflation, and that is the danger of boom because the higher level of production increases wages and increased wages decreases AS which increases price level and increases inflation in the economy.

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