- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 10. Aggregate Output, Prices, and Economic Growth
- Subject 6. Equilibrium GDP and Prices
CFA Practice Question
An increase in aggregate demand ______
B. reduces potential output.
C. does not change potential output.
A. raises potential output.
B. reduces potential output.
C. does not change potential output.
Correct Answer: C
Potential output is the long-run output level an economy can produce given the quantity of inputs available, the prices of these inputs, and production technology. It depends on supply conditions, not aggregate demand.
User Contributed Comments 7
| User | Comment |
|---|---|
| danlan | Distinguish short run and long run aggregate demand |
| cahiz84 | Increase short run real output |
| viannie | LR GDP depends only on supply that is the reason we need the field of economics to allocate the rare resources. Demand is when we have real money on hand where we can exchange for goods and services (availability depends solely on the supply curve). Price level => AD real GDP => AS |
| Oarona | You explained it well viannie |
| AUAU | Thanks Viannie. Good explanation. |
| bundy | Out put has to do with supply not demand |
| jpducros | bundy, I'm not sure your reasoning is supported by Keynessians. |