The Impact of Unused Resources on GDP

What happens when many of the resources in an economy are left unused?

A. GDP is expected to be above potential output
B. GDP is expected to be below potential output
C. GDP remains the same as potential output

Answer:

B. GDP is expected to be below potential output

When many of the resources in an economy are left unused, the Gross Domestic Product (GDP) is expected to be below potential output. Potential output is the maximum level of output an economy can produce when all resources are fully utilized. When resources are left unused, it means the economy is operating below its full capacity, leading to a lower GDP than what could be achieved.

The output gap in this scenario is negative, indicating that the actual output is less than what the economy could potentially produce if all resources were utilized efficiently. This gap represents the difference between the economy's current output and its potential output, highlighting the underutilization of resources and the unrealized economic potential.

It is essential for policymakers to address these unused resources to boost economic growth and maximize the efficiency of the economy. By identifying and utilizing these resources effectively, the economy can strive towards achieving its full potential output and reducing the output gap, leading to a more prosperous and productive economy.