Refer to the information provided in Figure 26.8 below to answer the question(s) that follow. Figure 26.8 -Refer to Figure 26.8. If the economy is currently at Point D producing output level Y₂, which of the following is not true? A) The economy is operating below full employment. B) Input prices are likely to fall. C) Aggregate supply shifts to the right and the economy ends up at Point E. D) The economy is operating above full employment.

Question

Quizplus · Accepted Answer

Point D is located to the right of the long-run aggregate supply (LRAS) curve, indicating that the economy is producing output beyond its potential level or full employment. Therefore, option D is not true. Option A is not correct because the economy is not producing at the point where the SRAS curve intersects the LRAS curve. Option B is not necessarily true because input prices may remain constant or rise due to various reasons. Option C is likely to be true as an increase in aggregate supply would shift the SRAS curve to the right, leading to a higher output level and a lower price level.

Refer to the Information Provided in Figure 26