When the economy is in a recession, the intersection between the:
A) long run AS and the AD occurs at an output level lower than potential output.
B) long run AS and the AD occurs at an output level higher than potential output.
C) short run AS and the AD occurs at an output level higher than potential output.
D) short run AS and the AD occurs at an output level lower than potential output.

Question

Quizplus · Accepted Answer

During a recession, there is slack in the economy and resources are underutilized. As a result, the short run AS curve shifts leftward, indicating that the economy can only produce at an output level lower than potential output. The intersection between the AD and the short run AS curve occurs at this lower output level, which is below potential output. Therefore, the correct choice is option D.

When the Economy Is in a Recession, the Intersection Between