BANKING GENERAL KNOWLEDGE
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
might be greater or less than potential GDP
|
|
|
will always be greater than potential GDP because of the tendency of nations to incur inflamation
|
|
|
always equals potential GDP
|
|
|
must always be less than potential GDP
|
Detailed explanation-1: -In any given year, an economy might have a real GDP that is greater or less than the potential GDP. When the economy is experiencing a recessionary gap, real GDP is usually less than the potential GDP. On the other hand, an expansionary gap results to a real GDP that is greater than the potential GDP.
Detailed explanation-2: -real GDP fluctuates about potential GDP. The real GDP (gross domestic product) for a country fluctuates about the potential GDP, which is the GDP corresponding to full employment level. Thus, the real GDP could be equal to potential GDP, less than the potential GDP or more than the potential GDP.
Detailed explanation-3: -Understanding an Inflationary Gap The real GDP can exceed the potential GDP, resulting in an inflationary gap. The inflationary gap denotes the relative rise in real GDP that causes an economy to increase its consumption, leading prices to climb in the long run.
Detailed explanation-4: -In inflationary periods, real GDP will be lower than nominal GDP. In deflationary times, real GDP will be higher.
Detailed explanation-5: -A negative gap shows that an economy is operating at less than its full potential. It’s underperforming and essentially leaving money on the table from where it should be trend-wise. Here, production and value are irretrievably lost due to a shortage of employment opportunities.