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Chapter 24: Q 26. (page 602)

What is potential GDP?

Short Answer

Expert verified

GDP is a gross domestic product.

Step by step solution

01

Step 1. Introduction

Potential GDP is the highest maintainable level of the real GDP that is produced by an economy.

02

Step 2. Explanation

At this level of GDP, the labor is fully employed, physical capital and technology are also used in full. In short run an economy can produce more than potential GDP but it is not able to do that in the long run.

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