-Refer to Figure 11-8.If YFE represents the full-employment level of output,what can we say about the state of the economy at Y₁?
A) It is in equilibrium,but below full employment.
B) It is in equilibrium,and therefore at full employment.
C) It is in equilibrium,but above full employment.
D) It is not in equilibrium,and output will increase.
E) It is not in equilibrium,and output will fall.

Question

-Refer to Figure 11-8.If YFE represents the full-employment level of output,what can we say about the state of the economy at Y₁?
A) It is in equilibrium,but below full employment. 
B) It is in equilibrium,and therefore at full employment. 
C) It is in equilibrium,but above full employment. 
D) It is not in equilibrium,and output will increase. 
E) It is not in equilibrium,and output will fall.

Quizplus · Accepted Answer

At Y₁, the economy is in equilibrium because aggregate demand equals aggregate supply, but it is below the full-employment level of output (YFE), indicating underemployment or a recessionary gap.