Use the figure below to answer the following questions.

Figure 26.3.1
-Refer to Figure 26.3.1. Consider statements (1)and (2)and select the correct answer. (1) The economy of Econoworld is experiencing an above full-employment equilibrium.
(2) SAS will automatically shift rightward as the economy adjusts to long-run equilibrium.
A)(1)is true; (2)is false.
B)(2)is true; (1)is false.
C)(1)and (2)are false.
D)(1)and (2)are true.
E)(1)is true; (2)is true if unemployment is below the natural rate.

Question

Use the figure below to answer the following questions.
  
Figure 26.3.1
-Refer to Figure 26.3.1. Consider statements (1)and (2)and select the correct answer. (1) The economy of Econoworld is experiencing an above full-employment equilibrium.
(2) SAS will automatically shift rightward as the economy adjusts to long-run equilibrium.
A)(1)is true; (2)is false. 
B)(2)is true; (1)is false. 
C)(1)and (2)are false. 
D)(1)and (2)are true. 
E)(1)is true; (2)is true if unemployment is below the natural rate.

Quizplus · Accepted Answer

The economy is actually experiencing a below full-employment equilibrium, as the intersection of AD and SRAS is to the left of the LRAS curve. Therefore, statement (1) is false. In this situation, SAS will shift leftward until it intersects with the AD curve at the LRAS level, so statement (2) is also false. Thus, choice B is the correct answer.

Use the Figure Below to Answer the Following Questions