Consider the AD/AS macro model.The main source of increases in material living standards over the long term is the
A)maintenance of a continuous inflationary gap.
B)continual avoidance of recessionary gaps.
C)continuous outward shift of aggregate demand.
D)continual increase in potential national income.
E)positive slope of the aggregate supply curve.

Question

Quizplus · Accepted Answer

The AD/AS model shows that sustained economic growth and increases in material living standards can only be achieved through an increase in potential national income. This means that the economy is able to produce more goods and services over time, which leads to higher levels of real GDP and increases in material standards of living. Choices A and B are incorrect because maintaining an inflationary gap or avoiding recessionary gaps over the long term is not sustainable and can lead to economic instability. Choice C is also incorrect because a continuous outward shift of aggregate demand alone does not necessarily lead to long-term economic growth and material living standards. Choice E is incorrect because the positive slope of the aggregate supply curve is a necessary condition for the operation of the AD/AS model, but it is not the main source of increases in material living standards over the long term.

Consider the AD/AS Macro Model