"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:

Investment Centre Manager

A role in charge of a business unit that is responsible for its own revenues, expenses, and assets, and is evaluated on its return on investment.

Cost Centre Manager

A manager responsible for a department or unit within a company that does not directly generate profit, focused on minimizing costs.

Narrow Focus

Concentration on a limited scope or a specific aspect of a problem, project, or field, which may restrict broader understanding or solutions.

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The distribution of decision-making power away from a central authority within an organization.