Figure 12-1 -Refer to Figure 12-1. At output level Y₁,

Question

Quizplus · Accepted Answer

At output level Y₁, the potential output is shown by the position of the production possibilities curve (PPC) and the actual output is shown by the position of the aggregate supply (AS) curve. The AS curve intersects with the PPC at a point where potential output equals actual output. However, at Y₁, the AS curve is below the PPC, indicating that the actual output is less than the potential output. This implies that there is a shortfall in output, and the economy is operating below full capacity. Therefore, potential output is greater than actual output, which is choice A.

Figure 12-1 -Refer to Figure 12-1. at Output Level Y1

Figure 12-1 -Refer to Figure 12-1. at Output Level Y₁