The graph shown displays various economic outcomes. If fiscal policy moves the economy from equilibrium A to equilibrium B:
A) the economy has not been restored to its full potential output.
B) the economy has been restored to its full potential output.
C) the economy has overheated and equilibrium has pushed output beyond its potential.
D) unemployment has increased.

Question

The graph shown displays various economic outcomes.  If fiscal policy moves the economy from equilibrium A to equilibrium B:
A) the economy has not been restored to its full potential output. 
B) the economy has been restored to its full potential output. 
C) the economy has overheated and equilibrium has pushed output beyond its potential. 
D) unemployment has increased.

Quizplus · Accepted Answer

Moving from equilibrium A to B does not necessarily mean that the economy has been restored to its full potential output. It could be that the fiscal policy implemented was not enough to bring the economy back to its full potential.

The Graph Shown Displays Various Economic Outcomes