Which of the following is true?
A)Aggregate supply is another name for potential GDP.
B)Potential GDP increases as the price level increases.
C)The potential GDP line has a negative slope.
D)At full employment,aggregate supply is equal to potential GDP.
E)Potential GDP decreases as the price level increases.

Question

Quizplus · Accepted Answer

At full employment, all resources in the economy are being utilized efficiently, meaning that potential GDP is also being reached. Therefore, at full employment, aggregate supply is equal to potential GDP. Choices A, B, and E are incorrect because potential GDP is not affected by the price level. Choice C is incorrect because the potential GDP line has a vertical, not a negative, slope.

Which of the Following Is True