An economy operating at a real GDP level below its potential will have:
A) relatively high unemployment levels.
B) nominal wages moving upward as the economy moves from the short run to the long run.
C) the SRAS curve shifting left as the economy corrects itself from the short run to the long run.
D) no change in price levels.

Question

Quizplus · Accepted Answer

When an economy is operating below its potential, it means there is a gap between actual and potential output. This indicates that there is excess capacity in the economy which leads to relatively high unemployment levels. As a result, individuals who are unable to find work will be included as part of the unemployed population, indicating an underutilization of labor resources.

An Economy Operating at a Real GDP Level Below Its