In the figure above, the shift from DLF1 to DLF2 could result ...

[haleyc112]

In the figure above, the shift from DLF1 to DLF2 could result from
 
  A) an increase in a government budget surplus.
  B) the economy entering a recession.
  C) the economy entering a strong expansion.
  D) an increase in the nominal interest rate.
  E) a decrease in the real interest rate.

Question 2

Define potential GDP. Under what circumstances does actual real GDP fall short of potential GDP, equal potential GDP, and exceed potential GDP?
 
  What will be an ideal response?

[vkodali]

Answer to Question 1

C

Answer to Question 2

Potential GDP is the level of real GDP that the economy produces when it is at full employment. Potential GDP can be contrasted with actual real GDP, the amount of real GDP the country actually produces. Actual real GDP can be less than potential GDP when the economy is producing at less than full employment, that is, when there is less than full employment in the labor market. Actual real GDP equals potential GDP when the economy is producing at full employment. Actual real GDP can exceed potential GDP temporarily as the economy approaches and then recedes from a business cycle peak.

[haleyc112]

TYSM

[kthug]

Excellent