Which factor most directly raises potential output in the long run?
Correct answer: B. A sustained increase in the economy's capital stock
- A. A temporary increase in consumer borrowing
- B. A sustained increase in the economy's capital stock
- C. A one-time rise in government purchases
- D. A short-lived increase in the general price level
Explanation
A larger capital stock increases the economy's productive capacity and can raise potential output over time. Temporary increases in demand may raise actual output but do not by themselves expand long-run capacity.
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About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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