The figure below shows the short-run aggregate supply curve of an economy. In this figure, if P₁ is the price level prevailing in the economy, it implies that: A) there is an expansionary gap. B) the price level will decrease. C) the actual unemployment rate is equal to the natural unemployment rate. D) the actual unemployment rate is below the natural unemployment rate. E) the actual rate of output is more than the potential output.

Question

Quizplus · Accepted Answer

At the price level P₁, the short-run aggregate supply curve intersects with the long-run aggregate supply curve at the natural level of output. This means that the economy is producing at its potential output level, and the actual unemployment rate is equal to the natural unemployment rate. Therefore, choice C is the best answer.

The Figure Below Shows the Short-Run Aggregate Supply Curve of an Economy