The potential output line shows:
A) the maximum sustainable output that can be produced from the existing set of inputs.
B) the maximum output that can be produced based on existing aggregate demand.
C) the maximum sustainable output that can be produced at the current price level.
D) the maximum output that can be produced when markets are quantity adjusting.

Question

Quizplus · Accepted Answer

The potential output line represents the maximum sustainable output that can be produced given the current set of inputs (like labor, capital, technology), without leading to inflation. It does not directly relate to aggregate demand, price levels, or market adjustments in the short term.

The Potential Output Line Shows