Use the Figure Below to Answer the Following Question(s)

question 42

Multiple Choice

Use the figure below to answer the following question(s) . Figure 10-17
Suppose an economy is currently operating at output Y₁ associated with AD₁ and SRAS₁, shown in Figure 10-17. Initially, the output of this economy is

• A) above its potential, and the rate of unemployment is greater than the natural rate.
• B) below its potential, and the rate of unemployment is greater than the natural rate.
• C) above its potential, and the rate of unemployment is less than the natural rate.
• D) below its potential, and the rate of unemployment is less than the natural rate.

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Definitions:

Long-Run Supply Curve

A graphical representation showing how the quantity supplied by an industry or a firm changes over time when all input levels, including physical capital, are variable.

Total Market Output

The total quantity of goods or services produced and offered for sale within a market by all firms.

Downward Sloping

A graphical representation indicating that one variable decreases as another increases, commonly used to describe demand curves in economics.

ATC Curves

Short for Average Total Cost curves, these are graphical representations showing how the average cost of production per unit changes with the level of output.