-In Figure 10.1,suppose this economy is in equilibrium at point a and Q_F represents full employment output.Which of the following statements is true? A)The economy is experiencing serious inflation problems. B)There is no GDP gap. C)Inventories are accumulating. D)Inventories are falling.

Question

Quizplus · Accepted Answer

At point a, the economy is producing at full employment level of output (Q_F), meaning there is no GDP gap. Therefore, option B is the correct choice. Option A is incorrect because inflation problems would occur if the economy was producing beyond full employment level. Option C is incorrect because if there were excess inventories, the producers would decrease production and move towards equilibrium, which is not the case here. Option D is also incorrect because falling inventories would imply that production is less than demand, leading to an increase in production to meet the demand.