Full-employment equilibrium occurs when
A) real GDP exceeds potential GDP.
B) a result of an increase in long-run aggregate supply.
C) real GDP equals potential GDP.
D) potential GDP exceeds real GDP.

Question

Quizplus · Accepted Answer

Full-employment equilibrium occurs when real GDP equals potential GDP, meaning that the economy is producing at its maximum sustainable level without causing inflationary pressures. Options A and D both involve a situation where either real GDP exceeds potential GDP or potential GDP exceeds real GDP, indicating an imbalance in the economy. Option B refers specifically to a change in long-run aggregate supply, which may or may not result in full-employment equilibrium depending on other factors in the economy.

Full-Employment Equilibrium Occurs When