Question

When an economy operates at its long-run potential output level, a. aggregate demand will exceed aggregate...

When an economy operates at its long-run potential output level,

a.

aggregate demand will exceed aggregate supply in the goods and services market.

b.

unemployment will decline to an abnormally low rate that cannot be sustained in the long run.

c.

the actual rate of unemployment will exceed the natural rate of unemployment.

d. the natural and actual rates of unemployment will be equal.

If an economy is operating in the range where its aggregate supply curve is vertical,

a.

an increase in aggregate demand will lead to an increase in real GDP without any increase in prices.

b.

a reduction in aggregate demand will lead to both a higher price level and more real output.

c.

an increase in aggregate demand will expand nominal GDP but not real GDP.

d.

the economy must be well below its full-employment output.

Homework Answers

Answer #1

When an economy operates at its long-run potential output level,
d. the natural and actual rates of unemployment will be equal.
Explanation: natural rate of unemploymetn is the unemployment that exists at full employment level of output.

If an economy is operating in the range where its aggregate supply curve is vertical,
c) an increase in aggregate demand will expand nominal GDP but not real GDP
Explanation: The increase in AD will lead only to increase in price level and no change in output. As a result, nominal GDP will rise but real GDP will remain the same.

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