Potential GDP is an estimate of the economy's ability to produce goods and services if the a. trade balance is zero. b. federal budget is balanced. c. labor force is fully employed. d. price level is stable.

To determine the correct answer, let's analyze the options in relation to the concept of Potential GDP: - **a. trade balance is zero.** This statement is not directly related to Potential GDP. Potential GDP focuses on the economy's production capacity rather than trade balances. - **b. federal budget is balanced.** While a balanced federal budget can have implications for economic stability, it does not directly define the economy's production capacity. - **c. labor force is fully employed.** This option is closely related to Potential GDP. Potential GDP is often defined as the level of output that an economy can produce when all resources, particularly labor, are fully employed. - **d. price level is stable.** Stability in the price level is important for economic health, but it does not directly define the capacity of the economy to produce goods and services. Based on this analysis, the correct answer is: **c. labor force is fully employed.**