Define potential GDP under what circumstances does actual real GDP fall short of potential GDP equal potential GDPand exceed potential GDP?

Answer 1

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.