When the labor market is int full employment,
A) the price level is stable.
B) the price level equals potential prices.
C) real GDP equals potential GDP.
D) the SAS curve is horizontal.

Question

Quizplus · Accepted Answer

When the labor market is in full employment, it means that all available resources are being utilized to produce goods and services, and the economy is producing at its potential GDP. This also means that there is no excess supply of labor, and therefore the economy is operating at its natural rate of unemployment. As a result, real GDP equals potential GDP. The price level may not necessarily be stable or equal to potential prices, as it depends on a variety of factors such as the level of aggregate demand and supply shocks. The SAS curve may not necessarily be horizontal, as changes in input prices or technology can affect the relationship between price level and real GDP in the short run.

When the Labor Market Is Int Full Employment