Assume this economy is initially producing an output of Y1. As the economy moves from Y1 to Y2 ___.

Question

Assume this economy is initially producing an output of Y1.  As the economy moves from Y1 to Y2 ___.

BlackTom AI · Accepted Answer

When interpreting the diagram and the prompt, start by identifying what a move from Y1 to Y2 represents in the context of macroeconomic graphs that show price level, GDP, and policy curves.
Option 1: 'the economy remains at full employment' would mean there is no change in the output gap or unemployment rate. However, moving from Y1 to Y2 typically indicates a shift in real GDP away from the initial equilibrium, suggesting a change in economic conditions rather than a static situation. This option ignores possible changes in resource utilization implied by the transition.
Option 2: 'the economy moves from full employment to recession' would imply that the higher output level Y2 is associated with a lower, not higher, level of GDP relative to potential. In most standard diagrams, advancing from Y1 to a higher Y2 corresponds to improving output, not deteriorating into recession, so this misreads the direction of the move.
Option 3: 'economy moves from recession to full employment' correctly describes an upward movement in real GDP from Y1 to Y2, which aligns with a recovery or expansion phase where output increases and unemployment falls toward full employment. This interpretation matches common macroeconomic reasoning about transitions to higher GDP levels.
Option 4: 'the economy moves from full employment to inflation' would imply that the move to Y2 is driven by demand-pull or cost-push pressures pushing up the price level as output expands. While inflation can accompany growth, the statement specifies a change from full employment and focuses on a price outcome rather than an output position. Without explicit inflation data tied to this transition in the prompt, this option introduces an additional claim not directly supported by the provided movement from Y1 to Y2.
Overall, the key idea is that moving from Y1 to Y2 represents an increase in real GDP, which is consistent with moving from recession toward full employment rather than remaining constant, slipping into recession, or focusing solely on inflation dynamics without addressing the output change.

ECON 2002.01 AU2025 (21333) Midterm Exam 3 - Requires Respondus LockDown Browser

Assume this economy is initially producing an output of Y1. As the economy moves from Y1 to Y2 ___.

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ECON 2002.01 AU2025 (21333) Midterm Exam 3 - Requires Respondus LockDown Browser

Assume this economy is initially producing an output of Y1. As the economy moves from Y1 to Y2 ___.

View Explanation

Log in for full answers

Similar Questions

The graph below illustrates the effects of monetary policy that shifts the AD curve right. This will result in a __________ in unemployment and a ____________ in the price level.

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An increase in the price level ___.

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

The graph below illustrates the effects of monetary policy that shifts the AD curve right. This will result in a in unemployment and a __ in the price level.

Figure 33-6 Refer to Figure 33-6. Suppose the economy starts at A. If changes occur that move the economy to a new short-run equilibrium of P1 and Y1 , then it must be the case that

Figure 33-5 Refer to Figure 33-5. Suppose the economy starts at Point Y. If there is a reduction in aggregate demand, then in the long run the economy moves to