Figure 26-12
-Refer to Figure 26-12. In the dynamic AD-AS model, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B
A) firms are producing above capacity.
B) there is pressure on wages and prices to fall.
C) the unemployment rate is greater than the natural rate of unemployment.
D) incomes and profits are falling.

Question

Figure 26-12 
-Refer to Figure 26-12. In the dynamic AD-AS model, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B
A) firms are producing above capacity. 
B) there is pressure on wages and prices to fall. 
C) the unemployment rate is greater than the natural rate of unemployment. 
D) incomes and profits are falling.

Quizplus · Accepted Answer

At point B, the economy is operating above its potential output, which means firms are producing above capacity.

Figure 26-12 -Refer to Figure 26-12. in the Dynamic AD-AS Model, If