Refer to the information provided in Figure 26.8 below to answer the question(s) that follow. Figure 26.8 -Refer to Figure 26.8. 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 for the economy to produce Y₁ and sustain it without inflation, potential output must increase. This means that the economy must be able to produce more goods and services without increasing inflationary pressures. This can be achieved through investments in human capital, technology, and infrastructure, which will increase productivity and lead to higher potential output. Neither increasing nor decreasing government spending or the price of oil will have a direct impact on potential output.

Refer to the Information Provided in Figure 26