When we say that potential GDP is exogenous with respect to the price level, we refer to
A)the fact that changes in real money balances cause output to rise
B)the fact that the long-run AS-curve shifts to the right over time
C)the short-run AS-curve
D)the medium-run AS-curve
E)the Keynesian AS-curve

Question

Quizplus · Accepted Answer

Potential GDP is determined by factors such as the economy's technology, capital stock, and labor force. These factors are not influenced by changes in the price level in the short run. As a result, the long-run aggregate supply curve (LRAS), which shows the relationship between the price level and potential GDP, is vertical or "upward sloping" and shifts to the right over time due to improvements in technology, increases in the capital stock, and growth in the labor force. This means that potential GDP is exogenous or external to changes in the price level.

When We Say That Potential GDP Is Exogenous with Respect