The figure below shows the equilibrium in an aggregate demand-aggregate supply model.In this figure,which of the following is true for an economy that is at point V in the short run?

A) There is a recessionary gap worth $200 billion.
B) The potential output is $7 trillion.
C) The actual price level is 100.
D) The natural rate of unemployment is more than 6.8 trillion.
E) The actual output is equal to the potential output.

Question

The figure below shows the equilibrium in an aggregate demand-aggregate supply model.In this figure,which of the following is true for an economy that is at point V in the short run?

A) There is a recessionary gap worth $200 billion.
B) The potential output is $7 trillion.
C) The actual price level is 100.
D) The natural rate of unemployment is more than 6.8 trillion.
E) The actual output is equal to the potential output.

Shreemoya Mahapatra · Accepted Answer

Final Answer : E, Explanation :  At point V, the intersection of the aggregate demand (AD) and short-run aggregate supply (SRAS) curves, the economy is producing at its potential output level (intersection of SRAS and long-run aggregate supply (LRAS) curves) and the price level is stable at 100. There is no recessionary or inflationary gap present at point V. The natural rate of unemployment cannot be determined from the given information.

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