Use the figure below to answer the following questions.

Figure 26.3.1
-Refer to Figure 26.3.1.If Econoworld automatically adjusts to a long-run equilibrium,then in the long-run macroeconomic equilibrium
A)the price level is 70.
B)real GDP is $440 billion.
C)actual unemployment exceeds the natural unemployment rate.
D)potential GDP is greater than in the short run.
E)both A and B.

Question

Use the figure below to answer the following questions.
  
Figure 26.3.1
-Refer to Figure 26.3.1.If Econoworld automatically adjusts to a long-run equilibrium,then in the long-run macroeconomic equilibrium
A)the price level is 70. 
B)real GDP is $440 billion. 
C)actual unemployment exceeds the natural unemployment rate. 
D)potential GDP is greater than in the short run. 
E)both A and B.

Quizplus · Accepted Answer

In the long-run macroeconomic equilibrium, the economy will produce at potential GDP and the price level will be the same as expected (70 in this case). Therefore, both A and B are correct. However, in the long-run equilibrium, actual unemployment will equal the natural unemployment rate, so C is incorrect. Also, potential GDP is the same in both the short and long run, so D is incorrect.

Use the Figure Below to Answer the Following Questions