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 typically leads to a temporary recessionary gap as the economy's capacity to produce goods and services increases, but actual output may not immediately match this new potential.

An Increase in Potential Output Will Result In