FIGURE 24-5 Refer to Figure 24-5.If the economy is currently in equilibrium at E₃,the concept of asymmetrical adjustment of the AS curve suggests that A)the economy will attain potential output faster if there is no intervention by the government. B)a decrease in the price level will induce a rightward shift of AS. C)the return of the economy to potential output may be very slow without government intervention. D)the economy will never return to potential output. E)the price level is constant regardless of the level of equilibrium income.

Question

Quizplus · Accepted Answer

Asymmetric adjustment of the AS curve suggests that the economy may take a long time to return to potential output without government intervention. This means that if there is a negative shock to the economy, such as a decrease in aggregate demand, the AS curve may not shift back to the original position as quickly as it shifted in the opposite direction when there was a positive shock. Therefore, the return to potential output may be slow and require government intervention to speed up the process. Option A is incorrect because it assumes that the economy will attain potential output faster without government intervention, which is not necessarily true under asymmetric adjustment. Option B is incorrect because a decrease in the price level would cause a movement along the existing AS curve, not a shift. Option D is incorrect because the economy can eventually return to potential output, but it may take longer under asymmetric adjustment. Option E is incorrect because the price level can change based on the level of equilibrium income, as shown by the upward sloping AS curve.