Potential output in an economy decreases as the supply of labor decreases or the capital stock increases.

Name: Potential output in an economy decreases as the supply of labor decreases or the capital stock increases.
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Question

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Potential output in an economy increases with an increase in the capital stock, as more capital means more productive capacity. It decreases with a decrease in the labor supply because fewer workers are available to produce goods and services.

Potential Output in an Economy Decreases as the Supply of Labor