Exhibit 14A-4 Macro AD-AS Model

-In Exhibit 14A-4,point P₂,Y₁ represents:
A) that the economy needs policies to reduce unemployment.
B) a long-run equilibrium.
C) a short-run equilibrium.
D) that the economy is at full employment.

Question

Exhibit 14A-4 Macro AD-AS Model
 
-In Exhibit 14A-4,point P₂,Y₁ represents:
A) that the economy needs policies to reduce unemployment. 
B) a long-run equilibrium. 
C) a short-run equilibrium. 
D) that the economy is at full employment.

Quizplus · Accepted Answer

Point P₂, Y₁ represents a short-run equilibrium where aggregate demand intersects with the short-run aggregate supply curve. In this situation, the economy is producing at a level below its potential output, and there may be unemployment. Therefore, the best choice is C, which states that this point represents a short-run equilibrium.