Exhibit 10.1

-Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. If output is at Y₁, _____
A) the economy produces its potential output and unemployment is at the natural rate.
B) the economy produces its potential output and unemployment is higher than the natural rate.
C) the economy produces its potential output and unemployment is lower than the natural rate.
D) the economy is less than its potential output and unemployment is at the natural rate.
E) the economy is more than its potential output and unemployment is at the natural rate.

Question

Exhibit 10.1
 
-Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. If output is at Y₁, _____
A) the economy produces its potential output and unemployment is at the natural rate. 
B) the economy produces its potential output and unemployment is higher than the natural rate. 
C) the economy produces its potential output and unemployment is lower than the natural rate. 
D) the economy is less than its potential output and unemployment is at the natural rate. 
E) the economy is more than its potential output and unemployment is at the natural rate.

Quizplus · Accepted Answer

At output level Y₁, the SRAS curve intersects the long-run aggregate supply (LRAS) curve at the potential output level, indicating that the economy is producing at its maximum sustainable level. At this level of output, the unemployment rate is at the natural rate, which is the rate of unemployment that exists when the economy is producing its potential output.

Exhibit 10.1 -Refer to Exhibit 10.1, Which Shows the Short-Run Aggregate Supply