If full employment is associated with an output that is greater than the current macro equilibrium,which of the following best describes the impact of a rightward shift of the aggregate supply curve,ceteris paribus?
A)A higher price level and a higher level of output.
B)A higher price level and a lower level of output.
C)A recession or depression.
D)A lower price level and a higher level of output.

Question

Quizplus · Accepted Answer

A rightward shift of the aggregate supply curve indicates an increase in the productive capacity of the economy, which can lead to an increase in output and a decrease in prices. Therefore, the economy can reach full employment without experiencing inflationary pressures. This is represented by a movement from point A to B in the graph below:

[GRAPH]

At point A, the economy is in a macro equilibrium with output Y1 and price level P1. However, if there is a rightward shift of the aggregate supply curve to AS2, the equilibrium will move to point B, where output increases to Y2 and prices decrease to P2. Therefore, D is the correct answer.

If Full Employment Is Associated with an Output That Is