If potential GDP increases,
A)aggregate supply does not change.
B)the quantity of aggregate supply decreases.
C)aggregate supply increases.
D)the price level rises.
E)the money wage rate must have fallen.

Question

Quizplus · Accepted Answer

Potential GDP is the maximum level of output that an economy can produce with its existing resources and technology. If potential GDP increases, it means that the economy's capacity to produce goods and services has increased. This would lead to an increase in aggregate supply (the total amount of goods and services produced in the economy) as there are more resources and technology available to produce goods and services. Thus, choice C is the correct answer.

If Potential GDP Increases