Question

Potential output: A. is purely a physical phenomenon. B. is related to the long-term growth trend. C. requires government expenditures. D. requires the purchase of new equipment.

Answer 1

B.

Step-by-step explanation:

Potential output is related to long term growth trend.

Economic growth is the rise in the in the market value (inflation-adjusted) of the products and services which an economy produces over time. It is the percentage increase in the real gross domestic product.

The national income accounting can be used to calculate economic growth. Potential output is directly related to the long term growth trend and vice versa. If there is an increase in output, there will be an increase in growth in the economy all other things constant.

Answer 2

Option B, potential output IS RELATED TO THE LONG-TERM GROWTH TREND.

Step-by-step explanation:

Potential output is the total (or highest) real gross domestic product (GDP) that could be produced or sustained by an economy over the long term, if it using all of its resources. These resources include: technology, equipment, natural resources, and employees.

Potential output is generally understood as the desirable level of output, meaning the highest which may be attained in any given situation without putting inflationary pressure on the economy.

Therefore, option B best suits the question. Potential output IS RELATED TO THE LONG-TERM GROWTH TREND.