Question

Define potential GDP and its use in economic models

Define potential GDP and its use in economic models

Homework Answers

Answer #1

Potential GDP in the market is the point of the output where all the resources in the market are fully employed and there is no inflation in the market. This is the long run equilibrium were the demand, short run supply and the long run supply are all equal. At this point the maximum output can be achieved without having an inflation.

It is used to determine the ideal condition of the market, if the current GDP is less than the potential GDP then the market is experiencing a deflationary gap and if the market is above the potential GDP then the market is experiencing an inflationary gap. It helps the policy market make a decision in the market

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. Of these statements about the potential GDP line, which is incorrect? a) The potential GDP...
1. Of these statements about the potential GDP line, which is incorrect? a) The potential GDP line is a vertical line. b) The potential GDP line indicates the quantity of output the economy can produce c) The potential GDP line makes the assumption that it is at less than full employment of its physical capital and labor. 2. If a Keynesian economist is advocating the current economic policy be to increase government spending, what is the state of the current...
what is the difference between real gdp and potential gdp. Is potential gdp the same as...
what is the difference between real gdp and potential gdp. Is potential gdp the same as d fully employed
Suppose potential GDP is $5,000 billion. Use the data below to graph the aggregate demand curve....
Suppose potential GDP is $5,000 billion. Use the data below to graph the aggregate demand curve. Inflation (percent) 5 4 3 2 1 Real GDP (billions of dollars) 4800 4900 5000 5100 5200 1.Suppose the current inflation rate is 2 percent. Draw the inflation adjustment line. What is the current value of real GDP? 2.In the long run, what will the inflation rate be if economic policy does not change? Explain how this adjustment takes place.
1. Use macroeconomic models to describe how the pandemic has led to negative GDP growth because...
1. Use macroeconomic models to describe how the pandemic has led to negative GDP growth because of the COVID-19 pandemic. 2. What is a set of policies that will be most effective at pulling the economy out of this recession as quickly as possible? 3. How will the policies affect macro models in bringing about movement towards full employment GDP?
Adaptive expectations are formed when people use economic models to predict the future. True or False
Adaptive expectations are formed when people use economic models to predict the future. True or False
Economists use economic models to make assumptions about behavior of consumers as well as the market....
Economists use economic models to make assumptions about behavior of consumers as well as the market. Consider the models learned in this module, select one, and explain how it relates to your life. Production Possibilities Model, Production Possibility Curve, or Circular Flow Diagram.
Evaluate the health of the current U.S. economy by its GDP, business cycle, and economic growth.
Evaluate the health of the current U.S. economy by its GDP, business cycle, and economic growth.
economists do not use actual values of real GDP to measure economic growth because
economists do not use actual values of real GDP to measure economic growth because
If the economy is in equilibrium at a level above its potential GDP level, it is...
If the economy is in equilibrium at a level above its potential GDP level, it is experiencing: Select one: a. an inflationary (expansionary) gap. b. a supply shock. c. a recessionary (contractionary) gap. d. a productivity expansion.
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?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT