In the study of short- run fluctuations in national income, potential income (output)is usually assumed to be
A)constant.
B)moving together with potential output in neighbouring countries.
C)irrelevant, as the economy is rarely there.
D)equal to actual income.
E)falling at its average growth rate.

Question

Quizplus · Accepted Answer

In the short run, potential income (output) is usually assumed to be constant, as it is the maximum level of output that an economy can produce with its available resources and technology. This assumption helps in analyzing the fluctuations in actual income (output) around its potential level due to various factors such as changes in consumer spending, investment, government policies, etc.

In the Study of Short- Run Fluctuations in National Income