Figure 26-11
-Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B
A) there is pressure on wages and prices to rise.
B) the unemployment rate is very, very low.
C) firms are operating above their normal capacity.
D) the economy is below full employment.

Question

Figure 26-11 
-Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B
A) there is pressure on wages and prices to rise. 
B) the unemployment rate is very, very low. 
C) firms are operating above their normal capacity. 
D) the economy is below full employment.

Quizplus · Accepted Answer

At point B, the economy is below full employment, indicating that there is slack in the economy, which means there is no upward pressure on wages and prices, and unemployment is higher than the natural rate.

Figure 26-11 -Refer to Figure 26-11. in the Dynamic Model of AD-AS