If the equilibrium output is below potential output:
A) the price level decreases.
B) unemployment is constant.
C) aggregate demand increases.
D) inflation usually rises.

Question

Quizplus · Accepted Answer

The correct answer is A because when the equilibrium output is below potential output, there is excess supply in the economy. This excess supply will put downward pressure on prices, causing the price level to decrease.

If the Equilibrium Output Is Below Potential Output