According to the aggregate expenditures model, when an economy is in equilibrium at an output level that has high levels of unemployment:
A) there is no reason to expect that the unemployment will disappear in the short run.
B) the unemployment will disappear as soon as the economy self-corrects.
C) the equilibrium is at a point to the right of the natural rate of output.
D) the price level will soon rise.

Question

Quizplus · Accepted Answer

In the aggregate expenditures model, if an economy is in equilibrium at an output level with high levels of unemployment, it means that aggregate demand equals aggregate supply at a low level of output. This does not automatically correct in the short run, as the model does not inherently include mechanisms for self-correction towards full employment.

According to the Aggregate Expenditures Model, When an Economy Is