The situation in which actual output exceeds potential output
A) is impossible because all resources are employed to produce potential output
B) is possible only in times of high unemployment
C) is possible only if the unemployment rate is negative
D) is possible only in the long run
E) creates pressure for inflation

Question

Quizplus · Accepted Answer

If actual output exceeds potential output, it means that the economy is producing more goods and services than it is capable of in the long run. This creates pressure for inflation because there is more demand than supply, and prices will rise as a result. It is possible for this situation to occur in the short run when there is excess demand or supply shocks, but it is not sustainable in the long run.

The Situation in Which Actual Output Exceeds Potential Output