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Figure: Short-Run Equilibrium
-(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y₁ and P₁, it is in a(n) :

Question

Use the following to answer questions:
Figure: Short-Run Equilibrium

-(Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y₁ and P₁, it is in a(n) :

Quizplus · Accepted Answer

The economy is at equilibrium at Y1 and P1, which means that the aggregate demand (AD) curve intersects the aggregate supply (AS) curve at that point. If the economy is at equilibrium, it is not in a recessionary gap, an inflationary gap, or a high level of unemployment. A liquidity trap is a situation in which the interest rate is so low that the AD curve is horizontal. In this case, the AD curve is not horizontal, so the economy is not in a liquidity trap.

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