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During an economic boom,ResponsesA potential GDP equals real GDP.potential GDP equals real GDP.B prices fall.prices fall.C aggregate demand increases.aggregate demand increases.D potential GDP is greater than real GDP.

Question

During an economic boom,ResponsesA potential GDP equals real GDP.potential GDP equals real GDP.B prices fall.prices fall.C aggregate demand increases.aggregate demand increases.D potential GDP is greater than real GDP.

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Solution

During an economic boom, the most accurate response would be C: aggregate demand increases.

Here's why:

An economic boom is a period of rapid economic growth, characterized by higher productivity, increased consumer spending, and business expansion.

A. Potential GDP equals real GDP: This is not necessarily true. Potential GDP refers to the maximum output an economy can produce without causing inflation, while real GDP is the actual output. During a boom, real GDP could be close to potential GDP, but they are not always equal.

B. Prices fall: This is typically not the case during an economic boom. In fact, prices often rise during a boom due to increased demand for goods and services.

C. Aggregate demand increases: This is generally true. During an economic boom, businesses are producing more, consumers are spending more, and there is often increased investment. All of these factors contribute to an increase in aggregate demand.

D. Potential GDP is greater than real GDP: This is not necessarily true. As mentioned above, during a boom, real GDP could be close to potential GDP, but potential GDP is not necessarily always greater.

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