Question

Yp is what on the aggregate demand and supply graph?

A) where aggregate demand equals short run aggregate supply

B) real GDP when there is zero inflation

C) real GDP when there is zero unemployment

D) the real GDP when the economy is at full employment

Answer 1

Yp means Potential output. Potential output is the level of Real GDP that economy produced when economy is at its full employment level(Full employment means that economy has only natural rate of unemployment not zero unemployment. Hence optio (C) is incorrect). Thus option (D) is the correct answer.

{Note : Intersect of Aggregate demand and Aggregate supply tells us current level of output and not Yp. Thus option (A) is incorrect. Real GDP when there is zero inflation is also not known as Yp. Thus option (B) is also incorrect}

Hence, the correct answer is (D) the real GDP when the economy is at full employment