Figure 15-2. -Refer to Figure 15-2. The appearance of the long-run aggregate-supply (LRAS) curve A) is inconsistent with the concept of monetary neutrality. B) is consistent with the idea that point A represents a long-run equilibrium but not a short-run equilibrium when the relevant short-run aggregate-supply curve is AS₁. C) indicates that Y₁ is the natural rate of output. D) All of the above are correct.

Question

Quizplus · Accepted Answer

The LRAS curve in Figure 15-2 indicates that the natural rate of output is Y₁. This is because the LRAS curve represents the potential output of the economy when all resources are being fully utilized, and Y₁ is the level of output consistent with full employment. Choice A is incorrect because the LRAS curve alone does not imply anything about monetary neutrality. Choice B is incorrect because point A represents a short-run equilibrium rather than a long-run equilibrium.

Figure 15-2. -Refer to Figure 15-2. the Appearance of the Long-Run Aggregate-Supply