Which of the following statements about potential GDP is FALSE?
A) The Fed's goal is to have equilibrium GDP close to potential GDP.
B) When GDP is at potential, cyclical unemployment is zero.
C) It occurs when firms are producing at their maximum level of output.
D) It occurs when firms are producing with a workforce of normal size working normal hours.

Question

Quizplus · Accepted Answer

Potential GDP refers to the level of GDP attainable when the economy is operating at a level of resource use that is sustainable over the long term, not necessarily at maximum output levels. It implies an economy operating at full employment, where all available resources (including labor) are being used efficiently, but not necessarily maximally. This is because operating at maximum output could lead to overutilization of resources, which is not sustainable in the long term.

Which of the Following Statements About Potential GDP Is FALSE