-Refer to Figure 11-8.If Y_FE represents the full-employment level of output,what can we say about the state of the economy at Y₁? A) It is in recession. B) It is in expansion. C) It is in equilibrium,but above full employment. D) It is not in equilibrium,and output will increase. E) It is not in equilibrium,and output will fall.

Question

Quizplus · Accepted Answer

EIf Y_FE represents the full-employment level of output, then being at Y₁, which is below the full-employment level, indicates the economy is in a recession, meaning it is not producing at its potential output level. This situation also implies the economy is not in equilibrium at the current output level, and adjustments will occur that lead to a decrease in output as the economy seeks to return to equilibrium.