Suppose that because of a war, U.S. workers and factories must work 60 hours per week. In this situation,

Question

Suppose that because of a war, U.S. workers and factories must work 60 hours per week.  In this situation,

BlackTom AI · Accepted Answer

This question asks how a sudden, war-induced requirement for 60-hour workweeks would affect the relationship between actual GDP and potential GDP.
Option 1: actual GDP is above potential GDP. In the short run, forcing more labor and capital utilization typically pushes the economy to produce more than its normal long-run potential, creating a positive output gap. The increased hours raise aggregate supply in the short term, often surpassing the economy’s sustainable capacity, which tends to push actual GDP above potential GDP.
Option 2: actual output is below potential GDP. This would imply that the economy is not using its resources fully, which contradicts the premise of extra hours and intensified production during wartime; more intense utilization would not lead to underutilization in this context.
Option 3: potential GDP has increased. Potential GDP is determined by the economy’s long-run productive capacity (capital stock, technology, labor). A temporary war-time policy that increases hours does not instantly raise the economy’s fundamental capacity; potential GDP is generally unaffected in the short run by such a policy.
Option 4: potential GDP has decreased. There is no immediate mechanism here that reduces the economy’s long-run productive capacity; in fact, extended hours signal higher utilization rather than a permanent destruction of capacity, so this option mischaracterizes the short-run impact on potential output.

ECO102H1 S LEC0101 Week 6 Quiz - Business Cycles and Aggregate Expenditure

Suppose that because of a war, U.S. workers and factories must work 60 hours per week. In this situation,

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