Which of the following will cause potential output to decrease?
A) if the price level increases
B) if the price level decreases
C) if technological change increases labour productivity
D) if workers choose shorter work schedules in order to enjoy more leisure time

Question

Which of the following will cause potential output to decrease?  
A) if the price level increases 
B) if the price level decreases 
C) if technological change increases labour productivity 
D) if workers choose shorter work schedules in order to enjoy more leisure time

Quizplus · Accepted Answer

Workers choosing shorter work schedules in order to enjoy more leisure time will result in a decrease in the supply of labour, which in turn will decrease potential output. The other options either do not have any significant impact on potential output (in the case of technological change increasing labour productivity) or have the opposite effect (in the case of a decrease in the price level leading to an increase in potential output).

Which of the Following Will Cause Potential Output to Decrease