In Figure 9.6,if full employment occurs at Q C , then aggregate demand is
A)Too great,causing cyclical unemployment.
B)Too small,causing demand-pull inflation.
C)Too small,causing cyclical unemployment.
D)Just right.

Question

In Figure 9.6,if full employment occurs at Q C , then aggregate demand is
A)Too great,causing cyclical unemployment. 
B)Too small,causing demand-pull inflation. 
C)Too small,causing cyclical unemployment. 
D)Just right.

Quizplus · Accepted Answer

Full employment occurs at QS1U1B1C, but if aggregate demand is too small to meet that level, then there will be cyclical unemployment. This means that choice C is the correct answer. Option A is incorrect because if aggregate demand is too great, then there will be demand-pull inflation, not cyclical unemployment. Option B is also incorrect because it suggests that aggregate demand is too small, but demand-pull inflation is caused by excess aggregate demand. Option D is incorrect because it is too broad and does not provide a specific outcome based on the level of aggregate demand.