Question

Potential GDP is the value of real GDP when​ _______.

a. there is no frictional unemployment
b. there is no structural unemployment
c. the unemployment rate is zero
d. the unemployment rate equals the natural unemployment rate

Answer 1

c. the unemployment rate is zero

Step-by-step explanation:

Macroeconomic equilibrium occurs when the amount of real GDP is equal to the amount of potential GDP given at the intersection of the AD curve with the AD curve. When the real GDP provided is greater than the required amount, reserves are created so that firms can reduce production and prices. If the actual demand exceeds the supply, firms are depleted to increase production and prices. When potential GDP equals real GDP, full employment equilibrium occurs. In this case, AS curve intersects AD and Potential GDP at the same balance point. There are no gaps in this situation.