In the graphs below, Q_P refers to the economy's potential output level. Refer to the graphs above. Graph A is constructed on the basic assumption that: A) The price level is not flexible B) Nominal wages are unresponsive to price-level changes C) Real output is unresponsive to price-level changes D) Unemployment is unresponsive to price-level changes

Question

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Graph A shows a vertical potential output line, indicating that real output is constant regardless of changes in the price level. The only way this can happen is if nominal wages are unresponsive to changes in prices, as suggested in choice B. Choices A, C, and D are not supported by the graph.

In the Graphs Below, QP Refers to the Economy's Potential

In the Graphs Below, Q_P Refers to the Economy's Potential