Explain the difference between actual output and potential ...

[nevelica]

Explain the difference between actual output and potential output. What does the difference between these variables represent?
 
  What will be an ideal response?

Question 2

The most important component of the Economic Recovery Act passed by the Bush Administration was ________.
 
  A) the creation of the Federal Reserve discount window
  B) the establishment of the Troubled Asset Relief Program (TARP)
  C) the decrease in taxes for the wealthiest one percent of all Americans
  D) the creation of the Federal Reserve

[djofnc]

Answer to Question 1

Potential output represents the long-run level of output that is potentially achievable if all resources are used to their full utilization. Because potential output is a long-run concept, the difference between actual and potential output represents cyclical, or short-run, deviations in output from what is potentially achievable.

Answer to Question 2

B