"The Level of Potential Output,Y*,acts Like an Anchor for the Level

question 101

Multiple Choice

"The level of potential output,Y*,acts like an anchor for the level of real GDP." Which of the following best explains this statement?

• A)Following an AD or AS shock that pushes real GDP away from Y*,the adjustment of factor prices brings real GDP back to Y*.
• B)The level of potential output,Y*,is equal to whatever the level of actual GDP,no matter what shocks hit the economy.
• C)Real GDP is "anchored" to potential output,Y*,because real GDP is,by definition,always equal to Y*.
• D)Following an AD or AS shock that pushes real GDP away from Y*,changing technology brings Y* back to real GDP.
• E)The concept of potential output,Y*,as an anchor for real GDP refers to the fiscal policy tools used to bring real GDP back to Y*.

---

Definitions:

Middle Ear

The section of the ear located between the eardrum and the inner ear, responsible for amplifying sound waves.

Müller-Lyer Illusion

Illusion of line length that is distorted by inward-turning or outward-turning corners on the ends of the lines, causing lines of equal length to appear to be different.

Properties of Sound

Characteristics of sound waves, including frequency, amplitude, and timbre, that determine the pitch, loudness, and quality of sounds.

Brightness

The perception of how luminous an object appears; the intensity of light emitting from or reflecting off its surface.