Exhibit 11-2 -If the actual price level in Exhibit 11-2 exceeds the expected price level, then A)equilibrium output might be Y₂ in the short run B)equilibrium output might be Y₁ in the short run C)equilibrium output might be Y₃ in the short run D)potential output is greater than actual output E)unemployment is above the natural rate

Question

Quizplus · Accepted Answer

In Exhibit 11-2, when the actual price level exceeds the expected price level, the aggregate demand curve shifts to AD2. The new equilibrium output will be at the intersection of AD2 and the short-run aggregate supply curve (SRAS). Since SRAS1 is the only relevant curve in the short run, the equilibrium output will be at point B11 on SRAS1, which corresponds to Y₃. Therefore, option C is the correct answer. Options A and B correspond to a situation where the actual price level is below the expected price level (AD shifts to AD1), and option D is irrelevant to the question being asked. Option E cannot be determined from the information given in the question.

Exhibit 11-2 -If the Actual Price Level in Exhibit 11-2 Exceeds the 11-2