Long- run increases in potential GDP would most likely be caused by a (an)
A)decrease in saving in the short run.
B)increased availability of key factors of production.
C)decrease in factor- utilization rates.
D)increases in the prices of factors of production such as wages or interest rates.
E)decrease in factor productivity.

Question

Quizplus · Accepted Answer

An increase in potential GDP refers to the ability of an economy to produce more output in the long run. This can be accomplished by increasing the availability of key factors of production such as labor, capital, and land. Therefore, choice (B) is the correct answer. A decrease in saving in the short run (choice A) may result in increased consumption and growth in the short run but not sustainable long-run growth. A decrease in factor utilization rates (choice C) implies that resources are being underutilized, which is not conducive to long-run growth. Increases in prices of factors of production (choice D) may slow down economic growth in the short run by increasing costs to businesses, but it does not necessarily lead to long-term growth. A decrease in factor productivity (choice E) would decrease potential GDP.

Long- Run Increases in Potential GDP Would Most Likely Be