what happens when real GDP equals potential GDP or to make it easier what does it...

what happens when real GDP equals potential GDP or to make it easier what does it mean when the output gap is 0 is it receession or expansion or is it neither ??

Expert Solution

Neither. When potential GDP equals real GDP the economy is at full employment or macroeconomic equilibrium.

When AD exceeds the output, there is inflationary gap. When AD is less than the output there is deflationary gap.

Rahul Sunny answered 2 years ago

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