Question

Describe the current state of the economy relative to potential GDP. You are encouraged to use the most recent data from the first quarter of 2020, which is available on FRED (Links to an external site.). Unfortunately, the second-quarter GDP data, which will show the full impact of the initial effects of the pandemic, will not be available until July 30.

a) The economy is experiencing a recession, and GDP is below potential.
b) The economy is at full employment, and GDP equals potential.
c) The economy is in an expansion, and GDP exceeds potential.
d) The economy is at a standstill, and GDP is equal to zero.

Answer 1

The economy is experiencing a recession and GDP is below potential.

Step-by-step explanation:

The current state of the economy relative to potential GDP is that it is below potential. This means that the economy is experiencing a recession. For example, during the pandemic-induced recession in March and April 2020, the economy fell below potential GDP and has remained there as of early 2022.