The degree of responsiveness of aggregate output to a price change declines as the:
A) rate of savings increases.
B) economy approaches its maximum potential output.
C) level of real GDP declines over time.
D) the price elasticity of imports declines.
E) the excess capacity of all the firms in the economy increases over time.

Question

Quizplus · Accepted Answer

As the economy approaches its maximum potential output, it becomes increasingly difficult for firms to increase production in response to a price change. This is because they are already producing at or near their full capacity, so any increase in demand can only be met through more costly means such as increasing capital investment or hiring additional workers. Therefore, the degree of responsiveness of aggregate output to a price change declines.

The Degree of Responsiveness of Aggregate Output to a Price