Figure 14-5
-In Figure 14-5,if the economy is in equilibrium at E₁,then

Question

Figure 14-5 
-In Figure 14-5,if the economy is in equilibrium at E₁,then

Quizplus · Accepted Answer

At point E₁, the economy is producing below its potential long run equilibrium at full employment, which means it is underutilizing its resources. Option B can be ruled out as it indicates that the economy is producing above its potential, which is not the case at E₁. Option C is incorrect as there is no expansionary gap at E₁. Option D is also incorrect as high inflation occurs when the economy is producing at or beyond its potential and not when it is producing below it.

Figure 14-5 -In Figure 14-5,if the Economy Is in Equilibrium at E₁,then