Economic policies are effective at changing output when
A) the economy is not producing at capacity.
B) the economy is producing at its potential output.
C) the unemployment rate is at the natural rate.
D) the aggregate supply curve is vertical.

Question

Quizplus · Accepted Answer

Economic policies can effectively change output when the economy is not producing at capacity, as there is available resources and capacity to increase production. When the economy is already producing at its potential output, any attempt to increase output might lead to inflation rather than increased output, as the resources are fully utilized. Similarly, if the economy is producing at its natural rate of unemployment, changes in demand will mostly affect the price level rather than output. Finally, if the aggregate supply curve is vertical, changes in demand will not affect output but only the price level.

Economic Policies Are Effective at Changing Output When