Which of the following statements is true in an economy that is operating at potential output?

Question

A. The economy is underutilizing productive resources.

B. The economy is producing more in the short run than it can produce in the long run.

C. The economy is experiencing full employment.

D. The economy is experiencing both frictional and cyclical unemployment

Answer 1

In an economy that is operating at potential output, the correct statement is:

C. The economy is experiencing full employment.

At potential output, the economy is utilizing its resources efficiently, and unemployment is at the natural rate, which includes frictional and structural unemployment but not cyclical unemployment.