Answer to Question #162135 in Macroeconomics for John Dixon

Question

Question: In the long run, the output level which is obtained when capital (K) and labor (L) are employed at the maximum level for a given level of technology is called the:

Answer Choices Below [1 Correct Answer] -

A. Actual Output

B. Nominal Output

C. Real Output

D. Potential Output

Answer 1

$$Solution$$

Real output -  it is nominal output adjusted for changes in the price level, using prices from a base year (constant prices) instead of “current prices” used in nominal output; real output adjusts the level of output for any price changes that may have occurred over time.

It can also be said to be a macroeconomic measure of the value of economic output adjusted for price changes (i.e. inflation or deflation). This adjustment transforms the money-value measure, nominal output, into an index for quantity of total output.

Therefore in the long run, the real output level is obtained when capital$(K)$ and labor $(L)$ are employed at the maximum level .