3.1 a. List three factors that can change the economy’s potential output. b. Wha

Question

3.1 a. List three factors that can change the
economy’s potential output. b. What is the impact of shifts of the
aggregate demand curve on potential output?
C. Illustrate your answers
with a diagram.

a. The following is the list of three factors
that can change the economy’s potential that I have found:



The supply of labor may change
over time because of a change in the size, composition, or quality of the labor
force or a change in preference for labor versus leisure.
•
The quantity and quality of
other resources also change over time.
And, the capital stock-machines, buildings, and trucks-increases when
gross investment exceeds capital depreciation.
•
Institutional changes that
define property rights more clearly or make contracts more enforceable, such as
the introduction of clearer patent and copyright laws, will increase the
incentives to undertake productivity activity, thereby increasing potential
output.

b. ?





c. ?

Explanation / Answer

1. Increases in Technology 2. Increases in Productivity 3. Better educated workers An increase in AD does not affect potential output

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