An above full-employment equilibrium occurs when
A) the equilibrium level of real GDP is greater than potential GDP.
B) the equilibrium level of real GDP is less than potential GDP.
C) short-run aggregate supply decreases while neither aggregate demand nor long -run aggregate supply changes.
D) aggregate demand decreases while neither the short-run nor long-run aggregate supply changes.

Question

Quizplus · Accepted Answer

An above full-employment equilibrium occurs when the equilibrium level of real GDP is greater than potential GDP. This means that the economy is producing at a level that is unsustainable in the long-run as it is exceeding the maximum level of output that can be produced with the available resources and technology. This can lead to inflationary pressures and may result in a decrease in aggregate demand in the long-run.

An Above Full-Employment Equilibrium Occurs When