Figure 7-7 -Refer to Figure 7-7. At output level Y_K, A) the economy is not in equilibrium because it operates with an output gap. B) the economy is in short-run equilibrium and it operates with an inflationary gap. C) the economy is in short-run equilibrium and it operates with a recessionary gap. D) the economy is not in equilibrium because the unemployment rate is below the natural rate of unemployment.

Question

Quizplus · Accepted Answer

The point Y_K is below the potential output level (YS), indicating a recessionary gap. The unemployment rate (U1) is also above the natural rate of unemployment, confirming that the economy is operating below its full employment capacity. Therefore, the correct answer is C.

Figure 7-7 -Refer to Figure 7-7. at Output Level YK

Figure 7-7 -Refer to Figure 7-7. at Output Level Y_K