"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*.

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Definitions:

Critical Mass

A sufficient amount of something needed to maintain or start a process, especially in the context of nuclear reactions or creating social change.

Sample

A part of a population that is studied to reach conclusions about the entire population.

Case Study

A descriptive research method in which a single individual or a small number of persons are studied in great depth.

Naturalistic Study

Research conducted in a real-world setting without the manipulation or control of variables, observing natural behaviors.