Suppose the Economy's Short-Run Equilibrium Level Is at a Point

question 134

Multiple Choice

Suppose the economy's short-run equilibrium level is at a point to the left of Natural Real GDP.Which of the following statements is true?

• A) The economy is in an inflationary gap.
• B) The economy is in a recessionary gap.
• C) The economy is in long-run equilibrium.
• D) This situation is actually impossible.

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Definitions:

Public Good

A good that is non-excludable and non-rivalrous, meaning it can be used simultaneously by more than one person without reducing its availability to others.

Free Rider

An individual who benefits from resources, goods, or services without paying for the cost of the benefit.

Nonexcludable

Describes a good or service that prevents individuals from being excluded from using it; typically, because it is not feasible or cost-effective to do so.

Inefficiently High Level

A scenario where more resources are used than necessary, leading to waste and inefficiency.