Exhibit 10.1

-Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. In this Exhibit, if P₁ is the price level prevailing in the economy, it implies that _____
A) there is an expansionary gap.
B) the price level will decrease.
C) the actual unemployment rate is equal to the natural unemployment rate.
D) the actual unemployment rate is below the natural unemployment rate.
E) the actual rate of output is more than the potential output.

Question

Exhibit 10.1
 
-Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. In this Exhibit, if P₁ is the price level prevailing in the economy, it implies that _____
A) there is an expansionary gap. 
B) the price level will decrease. 
C) the actual unemployment rate is equal to the natural unemployment rate. 
D) the actual unemployment rate is below the natural unemployment rate. 
E) the actual rate of output is more than the potential output.

Quizplus · Accepted Answer

The point where the short-run aggregate supply curve intersects the vertical axis represents the level of output produced when all resources are fully employed, meaning that the economy is operating at its natural rate of unemployment. Therefore, if P₁ is the price level prevailing in the economy, it implies that the actual unemployment rate is equal to the natural unemployment rate.

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