Figure 13-3
-Refer to Figure 13-3.Which of the points in the above graph are possible short-run equilibria but not long-run equilibria? Assume that Y1 represents potential GDP.
A)A and B
B)A and C
C)C and D
D)B and D

Question

Figure 13-3 
-Refer to Figure 13-3.Which of the points in the above graph are possible short-run equilibria but not long-run equilibria? Assume that Y1 represents potential GDP.
A)A and B 
B)A and C 
C)C and D 
D)B and D

Quizplus · Accepted Answer

Points B and D are possible short-run equilibria but not long-run equilibria. At point B, the economy is producing above potential GDP (Y1) and experiencing inflationary pressure, which will lead to higher prices and decreased consumer purchasing power over time. Similarly, at point D, the economy is producing below potential GDP (Y1) and experiencing deflationary pressure, which will lead to lower prices and increased consumer purchasing power over time. In the long run, both of these points will adjust towards the potential GDP level, as the economy returns to equilibrium.

Figure 13-3 -Refer to Figure 13-3.Which of the Points in the Above