If actual output exceeds potential output, eventually:
A)input prices will rise and output will fall.
B)both input prices and output will rise.
C)input prices will fall and output will rise.
D)both input prices and output will fall.

Question

Quizplus · Accepted Answer

When actual output exceeds potential output, it indicates an economy operating above its sustainable capacity, leading to increased demand for inputs (like labor and materials). This heightened demand typically results in higher input prices. As costs rise, businesses may reduce production to cut expenses, leading to a decrease in output.

If Actual Output Exceeds Potential Output, Eventually