Which of the following is used to calculate the potential level of GDP?

• A. The sum of government spending and net exports
• B. The full-employment level of output
• C. The actual level of output in the economy
• D. The total value of imports

Answer: (B)

Verified step by step guidance

1. Understand that potential GDP refers to the maximum sustainable output an economy can produce when all resources (labor, capital, technology) are fully employed without causing inflation.
2. Recognize that the full-employment level of output is another term for potential GDP, representing the economy's capacity at natural rates of unemployment.
3. Identify that government spending and net exports are components of actual GDP, not potential GDP, so their sum does not measure potential GDP.
4. Note that the actual level of output can fluctuate above or below potential GDP due to business cycles, so it is not the same as potential GDP.
5. Conclude that the potential level of GDP is best represented by the full-employment level of output, which reflects the economy's sustainable production capacity.