The graph shown displays various economic outcomes. If the economy is currently at equilibrium D, and the government does nothing, then eventually:

Question

The graph shown displays various economic outcomes.  If the economy is currently at equilibrium D, and the government does nothing, then eventually:

Quizplus · Accepted Answer

The graph shows that the natural rate of output (Yn) is to the left of the current equilibrium point (D). This means that the economy is currently producing above its potential output. This will cause inflationary pressures and eventually lead to a leftward shift of the SRAS curve as resources become more scarce and prices increase. The new equilibrium point will be at a lower level of output (Y ₃) and at a higher price level. Therefore, the correct answer is B.

The Graph Shown Displays Various Economic Outcomes