Question

If real GDP is currently $200 billion, and the potential GDP is $300 billion, we can conclude with certainty that:

Select one:

a. the GDP gap is $500 billion.

b. there is no GDP gap

c. the GDP gap is $100 billion.

d. the economy is operating at full employment.

Answer 1

As we can see, the real GDP of the economy is short of the potential GDP by $100 billion, therefore, we can conclude that there is a GDP gap of $100 billion. Potential GDP of the economy refers to that GDP that an economy is capable of producing by utilising all of its resources efficiently and the real GDP tell us about the scenario how the economy is utilising all of its resources and clearly in this case the economy is not utilising all of its resources, therefore, the right answer is option C.