Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially at point A. All of the following statements are true except
A) the economy is in equilibrium at its potential output.
B) the labor market is in equilibrium.
C) there is no cyclical unemployment.
D) there is no structural or frictional unemployment.

Question

Use the following to answer questions .
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1 
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1) Suppose the economy is initially at point A. All of the following statements are true except
A) the economy is in equilibrium at its potential output. 
B) the labor market is in equilibrium. 
C) there is no cyclical unemployment. 
D) there is no structural or frictional unemployment.

Quizplus · Accepted Answer

Point A does not imply that there is no structural or frictional unemployment. These types of unemployment are natural and do not depend on the current state of the economy. Therefore, statement D is false.

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