the economy is operating at full employment. Note: full employment is not the same as zero unemployment.
The level of real GDP in the long run is called Potential GDP.
Potential GDP is the total numerical value of GDP before inflation is counted in. Real GDP is nominal GDP adjusted for inflation
Potential GDP is basically the sum of growth in productivity, growth in labor force, and growth in number of hours worked. In a mature economy like the US, change in number of hours worked is insignificant and often ignored. -Potential GDP is the level of real GDP that the economy would produce if it were at full employment. When real GDP falls short of potential GDP the economy is not at full employment. When the economy is at full employment real GDP equals potential GDP. Real GDP can exceed potential GDP only temporarily as it approaches and then recedes from a business cycle peak.
GDP Gap measures the percent difference in Real and Potential GDP
When the price level and the money wage rate change by the same percentage, the real wage rate remains constant at its full employment equilibrium level so employment remains constant and real GDP remains constant at "potential GDP" which is the quantity of real GDP at full employment.
The level of real GDP in the long run is called Potential GDP.
Potential GDP is the total numerical value of GDP before inflation is counted in. Real GDP is nominal GDP adjusted for inflation
Potential GDP is basically the sum of growth in productivity, growth in labor force, and growth in number of hours worked. In a mature economy like the US, change in number of hours worked is insignificant and often ignored. -Potential GDP is the level of real GDP that the economy would produce if it were at full employment. When real GDP falls short of potential GDP the economy is not at full employment. When the economy is at full employment real GDP equals potential GDP. Real GDP can exceed potential GDP only temporarily as it approaches and then recedes from a business cycle peak.
GDP Gap measures the percent difference in Real and Potential GDP
When the price level and the money wage rate change by the same percentage, the real wage rate remains constant at its full employment equilibrium level so employment remains constant and real GDP remains constant at "potential GDP" which is the quantity of real GDP at full employment.
why inflation increases when real GDP is above the potential GDP
Potential GDP is the highest level of Real GDP that could persist for a substantial period with raising the rate of inflation. In other words, it is the real value of the services and goods that can be produced when a country's factors of production are fully employed. Real GDP is the Gross Domestic Product in constant prices. It is a nation's total output of goods and services, adjusted for price changes.
The main difference is that Real GDP accounts for inflation and is calculated using Nominal GDP. It is useful when trying to compare GDPs froms different times.
as long as a different sector of the economy contributes to GDP by more than was lost from unemployment, real GDP will rise, if only marginally.
There are two types of GDP.such as 1)Potential GDP,2) Nominal GDP
Real GDP is adjusted for changes in the price level.
If the population of a country was growing while the real GDP remained the same,it would signify that the per capita income remained stagnant.