When each firm is producing its capacity and there is full employment, this shows:
A) an inflationary gap
B) a deflationary gap
C) the long run AS curve
D) all of these

Question

Quizplus · Accepted Answer

When each firm is producing its capacity and there is full employment, it shows the economy is operating at its potential output, which is the point where the short run aggregate supply curve intersects with the long-run aggregate supply curve. This suggests that the economy is in its long-run equilibrium and there is no inflationary or deflationary gap. Therefore, only option C is correct.

When Each Firm Is Producing Its Capacity and There Is