The degree of responsiveness of aggregate output to a price change declines as the:
A)rate of savings increases.
B)economy approaches its potential output.
C)GDP gap widens over time.
D)the price elasticity of imports declines.
E)the excess capacity of all the firms in the economy increases over time.

Question

Quizplus · Accepted Answer

As an economy approaches its potential output, it becomes increasingly difficult to increase aggregate output further. This is because resources are already being used efficiently and there is less scope for further production. Hence, the degree of responsiveness of aggregate output to a price change declines as the economy approaches its potential output.

The Degree of Responsiveness of Aggregate Output to a Price