About real and potential GDP correct, expected, potential

trogulj

Hi, i just want to seek some confirmation if my understanding is correct.
When real or actual GDP is more than potential or expected GDP, it will result in :
1) inflation will increase
2)unemployment will decrease.
Am i correct with this statement?

kickthatcfa

Both statements are correct. A level of GDP (i.e. output) greater than potential will increase price level. A level of GDP greater than potential implies also that all factors of production (i.e. labour) are being utilized or beyond capacity.