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Potential output is equal to A- long-run aggregate supply. B-long run aggregate demand. C-short-run aggregate supply....

Potential output is equal to

A- long-run aggregate supply.

B-long run aggregate demand.

C-short-run aggregate supply.

D-short-run aggregate demand.

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Answer #1

The correct option is A. Potential output refers to the highest sustainable amount of output that an economy can produce. It is the highest level of real GDP that can be sustained. Long run aggregate supply is the output that an economy can produce when it is at full employment and uses all it's factors of production. The potential output is also called as long run aggregate supply as they are not dependent on the price level in the economy, they vary with the variations in capital, labour and other cost of production. The long run aggregate supply curve is vertical stating one level of output at any price.

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