CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

In the short run, real GDP ______ potential GDP.

A. is always above
B. can fall below or rise above
C. is always below
Correct Answer: B

User Contributed Comments 6

User Comment
prachirp I don't understand how GDP can rise above potential GDP.How can u gor beyond potential?You can reach potential ,but beyond potential....????
javasun yes you can reach beyond potential but that cannot be sustained.
ambar You cam go beyond potential during expansion where more people will be required for job
wundac think of it this way potential gdp assume a 4 to 5% unemployment rate. In the short run we all know that unemployment can fall below that level (i.e expansion from ambar)
JepTang Real GDP can fluctuate around potential GDP. If it goes above then an inflationary gap is created. On the other hand, if it fluctuates below then a recessionary gap is created. In the long run, these inefficiencies should be corrected.
dmfcrowe Just look at developed economies right now. Expanded beyond potential primarily due to excess borrowing that was underpriced for the risk. Now suffering at under potential as excess leverage is reduced. Although being partially swallowed by governments at under valued prices again. Next step higher taxes to absorb this excess.
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