National income is at its maximum when which event occurs?

• A. When AD shifts
• B. Long run aggregate supply takes place
• C. When unemployment is zero
• D. When government spending is high

Answer: (B)

The main idea is that national income is maximized when the economy is producing at its potential output, i.e., when all resources are fully employed. In the long run, the economy’s capacity is set by factors like capital stock and technology, represented by the long-run aggregate supply. When the economy operates at this level, output is at its highest sustainable level and isn’t pushed higher by demand alone; trying to push beyond it simply raises prices rather than real output.

So the option describing long-run aggregate supply taking place matches this idea of producing at full capacity. Shifts in aggregate demand can change actual output in the short run but don’t determine the long-run maximum. Unemployment cannot realistically be zero even at maximum output, and higher government spending doesn’t automatically create a higher sustainable level of national income unless it expands productive capacity.