What term describes the possible production that would occur in an economy if all available factors were being fully employed?

The term that describes the maximum level of production that an economy can achieve when all available factors of production are fully employed is known as potential output. This concept is crucial for understanding the productive capacity of an economy. Potential output reflects the economy's ability to produce goods and services when resources, such as labor and capital, are utilized efficiently, without leading to inflationary pressure.

Current output, on the other hand, refers to the actual level of production occurring in the economy at a given time, which can be above or below potential output depending on various factors such as economic conditions or demand levels. Optimal output refers to the best production level that maximizes economic welfare, but it does not specifically account for full employment of resources. Fringe output is not a standard economic term related to production capacity and thus does not apply in this context.

Understanding potential output is essential for policymakers, as it sets a benchmark for assessing economic performance and guiding decisions to stimulate growth or address issues of unemployment.