The figure shows planned aggregate expenditure and output for an economy. Suppose that the economy's output is Y₂. This level of GDP would be considered: A) inflationary. B) recessionary. C) a long-run level of output. D) unsustainable over time.

Question

Quizplus · Accepted Answer

The level of output Y₂ corresponds to the intersection of the planned aggregate expenditure and the 45-degree line, which represents the long-run level of output. This means that at this level of output, the economy is producing at its potential and is not experiencing inflationary or recessionary pressures. It is a sustainable level of output over time.

The Figure Shows Planned Aggregate Expenditure and Output for an Economy