When we study the adjustment process in macroeconomics,what assumption are we making about potential output,Y*?
A)potential output is adjusting to changes in factor prices
B)potential output is adjusting to changes in factor supplies
C)potential output is adjusting to changes in technology
D)potential output is constant
E)potential output is not relevant to the analysis of the adjustment process

Question

Quizplus · Accepted Answer

When we study the adjustment process in macroeconomics, we assume that potential output (Y*) is constant. This is because potential output is determined by long-term factors such as technology, labor force, and capital stock, which are relatively stable in the short run. Therefore, in the adjustment process, we assume that potential output is fixed and that changes in output are driven by short-run factors such as changes in demand or supply shocks.

When We Study the Adjustment Process in Macroeconomics,what Assumption Are