Question

Potential GDP is synonymous with full employment GDP.
a. True
b. False

Answer 1

Potential GDP and full employment GDP are not synonymous. Potential GDP refers to the level of output an economy can produce when all resources are utilized efficiently, without any cyclical unemployment. Full employment GDP, on the other hand, is the level of output when the economy is producing at its potential and unemployment is at the natural rate of unemployment.

Step-by-step explanation:

The statement is false. Potential GDP and full employment GDP are not synonymous. Potential GDP refers to the level of output an economy can produce when all resources are utilized efficiently, without any cyclical unemployment. Full employment GDP, on the other hand, is the level of output when the economy is producing at its potential and unemployment is at the natural rate of unemployment.