Figure 7-5
-Refer to Figure 7-5. For the economy represented in the figure,
A) the real wage rate is higher than full-employment real wage.
B) the real wage rate is lower than full-employment real wage
C) the nominal wage rate is higher than full-employment nominal wage
D) the nominal wage rate is higher than full-employment nominal wage.

Question

Figure 7-5 
-Refer to Figure 7-5. For the economy represented in the figure,
A) the real wage rate is higher than full-employment real wage. 
B) the real wage rate is lower than full-employment real wage 
C) the nominal wage rate is higher than full-employment nominal wage 
D) the nominal wage rate is higher than full-employment nominal wage.

Quizplus · Accepted Answer

The intersection of the aggregate supply and aggregate demand curves (AD1 and AS1) in the figure is to the left of the vertical long-run aggregate supply (LRAS) curve, indicating an economy operating below full employment. This suggests that the real wage rate (adjusted for inflation) is lower than the full-employment real wage, as there is still excess labor supply in the market. It is not possible to determine the nominal wage rate from the information given.

Figure 7-5 -Refer to Figure 7-5. for the Economy Represented in the Represented