When the economy is in short run equilibrium,all of the following are true EXCEPT that
A) Y may exceed Y*.
B) Y may fall short of Y*.
C) inflation inertia may exist.
D) cyclical unemployment may exist.
E) Y must equal Y*.

Question

Quizplus · Accepted Answer

In short run equilibrium, the economy may not necessarily be producing at its potential output level (Y*), so it is possible for Y to fall short of Y* or even exceed it. However, for short run equilibrium to occur, aggregate demand must be equal to aggregate supply, which means Y must be equal to the current level of output (Y* or otherwise). Therefore, the correct answer is E, as all of the other options (A, B, C, and D) can exist in short run equilibrium.

When the Economy Is in Short Run Equilibrium,all of the Following