Exhibit 10.1

-Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. Which of the following is likely to be true if the actual price level in this exhibit exceeds the expected price level?
A) The equilibrium output will be Y₂ in the short run.
B) The equilibrium output will be Y₁ in the short run.
C) The actual unemployment rate is below the natural rate.
D) Potential output is greater than actual output.
E) The actual price level is less than the equilibrium price level.

Question

Exhibit 10.1
 
-Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. Which of the following is likely to be true if the actual price level in this exhibit exceeds the expected price level?
A) The equilibrium output will be Y₂ in the short run. 
B) The equilibrium output will be Y₁ in the short run. 
C) The actual unemployment rate is below the natural rate. 
D) Potential output is greater than actual output. 
E) The actual price level is less than the equilibrium price level.

Quizplus · Accepted Answer

When the actual price level exceeds the expected price level, firms are likely to produce more, leading to an output level above potential output, which results in an unemployment rate below the natural rate.

Exhibit 10.1 -Refer to Exhibit 10.1, Which Shows the Short-Run Aggregate Supply