Figure 7-2
-Refer to Figure 7-2. Based on the figure, we can conclude that
A) in the short run, the economy will always achieve full-employment equilibrium.
B) in the long run, given flexible wages and prices, the economy will achieve equilibrium at its potential output level.
C) flexible wages and prices are irrelevant since the LRAS curve is vertical.
D) in the long run, the aggregate demand curve determines the potential output level.

Question

Figure 7-2 
-Refer to Figure 7-2. Based on the figure, we can conclude that
A) in the short run, the economy will always achieve full-employment equilibrium. 
B) in the long run, given flexible wages and prices, the economy will achieve equilibrium at its potential output level. 
C) flexible wages and prices are irrelevant since the LRAS curve is vertical. 
D) in the long run, the aggregate demand curve determines the potential output level.

Quizplus · Accepted Answer

The figure shows a vertical long-run aggregate supply (LRAS) curve, indicating that flexible wages and prices do not affect potential output in the long run. The intersection of the LRAS, SRAS, and AD curves represents the long-run equilibrium level of output, which is at the potential output level. Therefore, in the long run, the economy will achieve equilibrium at its potential output level given flexible wages and prices.

Figure 7-2 -Refer to Figure 7-2. Based on the Figure, We Can