The estimate of potential GDP would decrease if
A)the rate of capital depreciation increased.
B)the labor force decreased.
C)the price level grew.
D)All of the above would increase potential GDP.

Question

Quizplus · Accepted Answer

Potential GDP is a measure of the maximum level of output that can be produced by an economy at full employment and without inflationary pressures. A decrease in the labor force would lead to a decrease in the potential GDP, as there would be fewer workers available to produce goods and services. An increase in the rate of capital depreciation or the price level would not directly affect potential GDP. Therefore, option D, "All of the above would increase potential GDP," is incorrect.

The Estimate of Potential GDP Would Decrease If