Refer to the Graph Shown

question 101

Multiple Choice

Refer to the graph shown.In the graph, if the price level is P₁ and the aggregate demand curve is AD₀ then the economy is:

• A)in a recessionary gap.
• B)in an inflationary gap.
• C)in a long-run equilibrium.
• D)fully employed.

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Definitions:

Full Employment

A situation in an economy where all available labor resources are being used in the most efficient way possible, typically characterized by very low unemployment.

Depreciates

Describes a decrease in value over time, often used in reference to currency or physical assets.

Imports

Goods and services purchased from other countries and brought into a country.

Inflation

The speed at which the overall price level for goods and services increases, thereby diminishing buying power.