A decrease in long- run real GDP (potential GDP)would be most likely caused by a (an)
A)increase in factor- utilization rates.
B)increase in unemployment rates.
C)decrease in unemployment rates.
D)decrease in interest rates.
E)decrease in factor productivity.

Question

Quizplus · Accepted Answer

A decrease in factor productivity, which refers to the efficiency or effectiveness of the inputs used in producing goods and services, would cause a decrease in long-run real GDP or potential GDP. This means that the economy is not able to produce as much output with the same amount of resources or inputs, leading to a decline in living standards over time. Factors that can affect productivity include technological progress, education and training, infrastructure, research and development, and the quality of institutions and governance.

A Decrease in Long- Run Real GDP (Potential GDP)would Be