What does potential output represent?
A) the amount produced when firms' and workers' expectations about the price level are realized
B) the amount produced when the actual price level is higher than workers expected
C) the amount produced when firms and workers have the same expectations about the price level
D) the amount produced when the actual price level remains constant

Question

What does potential output represent?  
A) the amount produced when firms' and workers' expectations about the price level are realized 
B) the amount produced when the actual price level is higher than workers expected 
C) the amount produced when firms and workers have the same expectations about the price level 
D) the amount produced when the actual price level remains constant

Quizplus · Accepted Answer

Potential output represents the level of output that an economy can produce when all factors of production are utilized at their normal rates, assuming that firms' and workers' expectations about the price level are realized. This concept is not directly related to the actual price level or the constancy of the price level, but rather to the optimal use of resources under expected conditions.

What Does Potential Output Represent