Exhibit 10.1

-Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. If P₃ is the price level prevailing in the economy, _____
A) there is an expansionary gap.
B) there is a recessionary gap.
C) the price level will rise.
D) the actual unemployment rate is above the natural rate.
E) potential output is greater than actual output.

Question

Exhibit 10.1
 
-Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. If P₃ is the price level prevailing in the economy, _____
A) there is an expansionary gap. 
B) there is a recessionary gap. 
C) the price level will rise. 
D) the actual unemployment rate is above the natural rate. 
E) potential output is greater than actual output.

Quizplus · Accepted Answer

P₃ is above the equilibrium price level, indicating that there is excess demand in the economy. This leads to an expansionary gap, where actual output is below potential output, and the economy is operating below its full capacity.

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