Potential output is the
A) maximum rate of output that can ever be achieved.
B) highest rate of output that has ever been achieved in the past.
C) maximum sustainable output level consistent with the economy's resource base and current institutions.
D) the rate of output present when the general level of prices is unstable.

Question

Quizplus · Accepted Answer

Potential output refers to the maximum sustainable output level that an economy can achieve given its resources and institutions. It is not necessarily the highest output that has been achieved in the past, nor is it a fixed maximum rate of output that can never be surpassed. It is also not related to the stability of prices, which is measured by inflation.

Potential Output Is the