Refer to the information provided in Figure 12.8 below to answer the questions that follow. Figure 12.8 -Refer to Figure 12.8.For this economy to produce Y₁ and sustain it without inflation A)the price of oil must increase. B)the government must increase spending. C)the government must decrease spending. D)potential output must increase.

Question

Quizplus · Accepted Answer

In order to sustain production of Y₁ without inflation, the economy needs to increase its potential output. This can be achieved through investments in technology, education, and infrastructure, that would result in an expansion of the economy's productive capacity. Increasing government spending or the price of oil may provide a temporary boost to output, but it is not a sustainable solution in the long run. Decreasing government spending may help to control inflation, but it would also likely lead to a decrease in output. Therefore, D is the best choice.

Refer to the Information Provided in Figure 12