Explain the relationship between real GDP and potential GDP during the two phases of the business cycle
What will be an ideal response?
During an expansion the level of real GDP eventually surpasses potential GDP, reaches a peak and subsequently falls below potential GDP during a recession eventually reaching a trough.
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The economy's marginal social benefit curve for a public good is obtained by
A) horizontally summing each individual's demand curve. B) horizontally summing each individual's marginal benefit curve. C) vertically summing each individual's marginal benefit curve. D) averaging each individual's marginal benefit curve.
When there is a capacity constraint
A) firms face sunk costs when deciding whether or not to expand. B) consumers will avoid the producer and go with a firm that has extra capacity. C) firms are not maximizing their profits during high season. D) firms can use peak-load pricing to increase profits during periods of high demand.