$$\begin{array} { | c | c | c | c | }
\hline \text { Price level } & \begin{array} { c }
\text { Aggregate demand } \
\text { (trillions of 2005 } \
\text { dollars) }
\end{array} & \begin{array} { c }
\text { Short-run aggregate } \
\text { supply (trillions of } \
2005 \text { dollars) }
\end{array} & \begin{array} { c }
\text { Long-run aggregate } \
\text { supply (trillions of } \
\text { 2005 dollars) }
\end{array} \
\hline 100 & 11 & 7 & 10 \
\hline 110 & 10 & 8 & 10 \
\hline 120 & 9 & 9 & 10 \
\hline 130 & 8 & 10 & 10 \
\hline 140 & 7 & 11 & 10 \
\hline
\end{array}$$
-Based on the data in the table above,at the short-run equilibrium
A) the unemployment rate is less than the natural unemployment rate.
B) the unemployment rate is greater than the natural unemployment rate.
C) money wage rates will rise in long-run.
D) the economy is at full employment.

Question

$$\begin{array} { | c | c | c | c | } 
\hline \text { Price level } & \begin{array} { c } 
\text { Aggregate demand } \
\text { (trillions of 2005 } \
\text { dollars) }
\end{array} & \begin{array} { c } 
\text { Short-run aggregate } \
\text { supply (trillions of } \
2005 \text { dollars) }
\end{array} & \begin{array} { c } 
\text { Long-run aggregate } \
\text { supply (trillions of } \
\text { 2005 dollars) }
\end{array} \
\hline 100 & 11 & 7 & 10 \
\hline 110 & 10 & 8 & 10 \
\hline 120 & 9 & 9 & 10 \
\hline 130 & 8 & 10 & 10 \
\hline 140 & 7 & 11 & 10 \
\hline
\end{array}$$
-Based on the data in the table above,at the short-run equilibrium
A) the unemployment rate is less than the natural unemployment rate.
B) the unemployment rate is greater than the natural unemployment rate.
C) money wage rates will rise in long-run.
D) the economy is at full employment.

Quizplus · Accepted Answer

At the short-run equilibrium, the aggregate demand (AD) curve intersects the short-run aggregate supply (SRAS) curve. From the table, at the price level of 100, the AD is greater than the SRAS, which means there is an excess demand in the market. This will lead to firms increasing their production, and thus their demand for labor will increase. This will push the wage rates up and result in a higher cost of production. Therefore, at the short-run equilibrium, the price level will be higher, and the output will be higher than the long-run equilibrium. As a result, the economy is producing above the natural rate of output, leading to higher employment in the short run. However, in the long run, the SRAS curve will shift leftward, and the price level will increase, resulting in a decrease in output to the natural rate of output. Thus, the unemployment rate in the short-run equilibrium is higher than the natural rate of unemployment.

-Based on the Data in the Table Above,at the Short-Run