Explain the relationship between real GDP and potential GDP and ...

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Explain the relationship between real GDP and potential GDP and between the unemployment rate and the natural unemployment rate as the economy moves through a business cycle.
 
  What will be an ideal response?

Question 2

If the MPC is 0.6 and there are no imports or income taxes, the multiplier is
 
  A) 6. B) 0.4. C) 2.5. D) 0.6. E) 1.7.

[Koolkid240]

Answer to Question 1

Potential GDP is the level of GDP when the economy is at full employment. Real GDP is the level of GDP and can be above or below potential GDP depending on whether employment is above or below full employment. The natural unemployment rate is the unemployment rate when the economy is at full employment. The unemployment rate can be above or below the natural unemployment rate. In a recession, real GDP is less than potential GDP and unemployment exceeds the natural rate. In an expansion, real GDP is greater than potential GDP and unemployment is less than the natural rate.

Answer to Question 2

C

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Correct answers!

[Koolkid240]

Great! Please up vote