Natural rate of output is also referred to as what?

• A. Actual GDP.
• B. Nominal GDP.
• C. Potential output.
• D. Unadjusted GDP.

Answer: (C)

The natural rate of output is the level of real GDP the economy can sustain over the long run when its resources are used at normal, non-inflationary levels—often called potential output or full-employment output. This reflects the economy’s productive capacity given current technology, capital, and resources, and it corresponds to a stable price level because demand aligns with what the economy can supply. That’s why the best term for the natural rate of output is potential output. Actual GDP is what’s happening in the moment and can rise above or fall below this level during booms or recessions; nominal or unadjusted GDP measures value in current prices rather than the real, capacity-based level.