FIGURE 24-1
-Refer to Figure 24-1. If the economy is currently in a short-run equilibrium at Y0, the economy is experiencing
A) a recessionary output gap.
B) an inflationary output gap.
C) a labour shortage.
D) a long-run equilibrium.
E) potential output growth.

Question

FIGURE 24-1
-Refer to Figure 24-1. If the economy is currently in a short-run equilibrium at Y0, the economy is experiencing
A) a recessionary output gap. 
B) an inflationary output gap. 
C) a labour shortage. 
D) a long-run equilibrium. 
E) potential output growth.

Quizplus · Accepted Answer

At Y0, the economy is producing below its potential output level (Yp), as shown by the difference between Y0 and Yp. This indicates a recessionary output gap, where there is unused productive capacity and unemployment is higher than desired.

FIGURE 24-1 -Refer to Figure 24-1. If the Economy Is Currently in Currently