Refer to the following figure when answering the following questions.
Figure 9.1: Output versus Time

-Considering Figure 9.1:
A) area a is where current output is less than potential output, and area b is where current output is greater than potential output.
B) area a is where current output is greater than potential output, and area b is where current output is less than potential output.
C) point c is where economic fluctuations are zero, and at point b, the economy is in a boom.
D) at point c, current output equals the short-term fluctuations.
E) area a is where current output is greater than potential output, and at point c, the economy is in a boom.

Question

Refer to the following figure when answering the following questions.
Figure 9.1: Output versus Time

-Considering Figure 9.1:
A) area a is where current output is less than potential output, and area b is where current output is greater than potential output. 
B) area a is where current output is greater than potential output, and area b is where current output is less than potential output. 
C) point c is where economic fluctuations are zero, and at point b, the economy is in a boom. 
D) at point c, current output equals the short-term fluctuations. 
E) area a is where current output is greater than potential output, and at point c, the economy is in a boom.

Quizplus · Accepted Answer

Area a represents a recessionary gap where the actual output is less than potential output, and area b represents an inflationary gap where the actual output is greater than potential output. Point c is the long-run equilibrium point where the actual output equals the potential output. Therefore, option B correctly describes the areas and their relationship with potential output.

Refer to the Following Figure When Answering the Following Questions