The reason that it is possible for the economy in the above figure to be at equilibrium E₂ rather than at E₁ is that
A) in the long run there is always less than full employment.
B) in the short run the economy can produce more than it can in a long-run situation.
C) AD always shifts rightward and never shifts leftward.
D) the economy must be in a recession.

Question

Quizplus · Accepted Answer

In the short run, an economy can produce at a level higher than its long-run potential due to factors such as increased demand and utilization of resources. This can result in equilibrium being at E₂ instead of E₁. However, in the long run, the economy will eventually return to its potential output level, represented by the LRAS curve, which intersects with the AD curve at E₁.

The Reason That It Is Possible for the Economy in the Above