Figure 13-5 shows the short-run macroeconomic equilibrium of an economy at Point A. In the figure, Point A suggests that:Figure 13-5
A)the real value of currency in the economy is lower than its nominal value.
B)the economy is operating with a recessionary gap.
C)the economy is operating at long-run equilibrium.
D)the government should increase the level of taxes in the economy.
E)the government should decrease its budget.

Question

Figure 13-5 shows the short-run macroeconomic equilibrium of an economy at Point A. In the figure, Point A suggests that:Figure 13-5 
A)the real value of currency in the economy is lower than its nominal value. 
B)the economy is operating with a recessionary gap. 
C)the economy is operating at long-run equilibrium. 
D)the government should increase the level of taxes in the economy. 
E)the government should decrease its budget.

Quizplus · Accepted Answer

Point A suggests that the equilibrium output is below the full employment level of output or the potential GDP. This indicates a recessionary gap and implies that there is unemployment or unused capacity in the economy. Therefore, option B is the correct choice. Options A, C, D, and E are incorrect as they do not correctly describe the situation depicted by Point A in the graph.

Figure 13-5 Shows the Short-Run Macroeconomic Equilibrium of an Economy