Refer to the information provided in Figure 26.1 below to answer the question(s) that follow. Figure 26.1
-Refer to Figure 26.1. This economy is most likely experiencing excess capacity at aggregate output levels
A) above $1,500 billion.
B) between $1,000 billion and $1,500 billion.
C) between $500 billion and $1,000 billion.
D) below $500 billion.

Question

Refer to the information provided in Figure 26.1 below to answer the question(s) that follow.  Figure 26.1
-Refer to Figure 26.1. This economy is most likely experiencing excess capacity at aggregate output levels
A) above $1,500 billion. 
B) between $1,000 billion and $1,500 billion. 
C) between $500 billion and $1,000 billion. 
D) below $500 billion.

Quizplus · Accepted Answer

In Figure 26.1, the intersection of the long-run aggregate supply (LRAS) curve and the aggregate demand (AD) curve occurs at an output level of approximately $400 billion. This suggests that at output levels below $500 billion, there is excess capacity in the economy, meaning that firms are producing less than they are capable of producing. As output levels increase, the economy will move up along the LRAS curve and eventually reach the point of potential GDP, where there is no excess capacity. Therefore, choices A, B, and C are incorrect.

Refer to the Information Provided in Figure 26