Exhibit 14-5

-Refer to the graph in the exhibit.What does the graph illustrate about the state of the economy?
A) The economy is in a long-run equilibrium at the price level P and income level Y.
B) The economy is in a short-run equilibrium at the price level P and income level Y.
C) The economy is experiencing a recessionary gap at price level P and income level Y.
D) The economy is in a short-run equilibrium at the price level P′ and income level Y.

Question

Exhibit 14-5
 
-Refer to the graph in the exhibit.What does the graph illustrate about the state of the economy?  
A) The economy is in a long-run equilibrium at the price level P and income level Y. 
B) The economy is in a short-run equilibrium at the price level P and income level Y. 
C) The economy is experiencing a recessionary gap at price level P and income level Y. 
D) The economy is in a short-run equilibrium at the price level P′ and income level Y.

Quizplus · Accepted Answer

The graph illustrates a short-run equilibrium, where the aggregate demand intersects the short-run aggregate supply curve, resulting in an equilibrium price level (P) and output level (Y). This is demonstrated by the vertical distance between the long-run aggregate supply and the short-run aggregate supply curve. The graph does not provide enough information to determine the presence of a recessionary gap or long-run equilibrium. Therefore, the best answer is B, the economy is in a short-run equilibrium at the price level P and income level Y.

Exhibit 14-5 -Refer to the Graph in the Exhibit.What Does the Graph