An increase in potential output will result in:
A)a temporary expansionary gap.
B)a higher rate of inflation eventually.
C)a temporary recessionary gap.
D)an immediate shift upward in the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

An increase in potential output means the economy can produce more goods and services, which can lead to a temporary recessionary gap if actual output doesn't immediately match the new potential output.

An Increase in Potential Output Will Result In