-Refer to the graph in the exhibit.Suppose P₁ is the prevailing price level.Which of the following best describes the situation?
A) There is an expansionary gap.
B) The price level will decrease.
C) The expected price level is the same as the actual price level.
D) The unemployment rate is below the natural unemployment rate.

Question

-Refer to the graph in the exhibit.Suppose P₁ is the prevailing price level.Which of the following best describes the situation?  
A) There is an expansionary gap. 
B) The price level will decrease. 
C) The expected price level is the same as the actual price level. 
D) The unemployment rate is below the natural unemployment rate.

Quizplus · Accepted Answer

When the prevailing price level P₁ is the same as the expected price level, it indicates that the economy is in equilibrium, with no unexpected inflation or deflation.

-Refer to the Graph in the Exhibit