At output level Yk,

Question

At output level Yk,

BlackTom AI · Accepted Answer

The question asks us to interpret the economy at output level Yk based on the diagram provided and the listed options.
Option a: 'a contractionary intervention is called for.' If the economy is at Yk, which is the potential output (long-run), the appropriate policy depends on whether actual output equals potential output. Since the problem statement indicates unemployment is above natural rate at Yk, this option would be inappropriate because a contractionary policy would further reduce output and worsen unemployment, not help. So this choice seems unlikely to be correct.
Option b: 'over time aggregate demand will rise to restore long-run equilibrium.' This statement suggests an automatic or policy-driven rise in AD to close the gap. In the standard AD-AS framework, if the economy is below the natural rate of unemployment (i.e., high unemployment) and output is at Yk (potential), the initial effect is that AD would need to increase to push actual output toward potential. However, the claim that AD will 'rise' over time presumes an adjustment mechanism that may or may not be specified in the diagram. Without additional context about AD shifting on its own, this option is not as directly tied to the given Yk condition as the other options.
Option c: 'potential output is less than actual output.' This would imply the economy is operating beyond its potential with inflationary pressures, typically associated with unemployment below the natural rate. But the provided information states unemployment exceeds the natural rate at Yk, which contradicts this scenario. Therefore, this option is incorrect.
Option d: 'there is a surplus of real GDP.' A surplus of real GDP relative to what? If output is at Yk and unemployment is above natural rate, the economy is not experiencing a surplus of real GDP; rather, it is underperforming relative to full employment. This makes the statement inaccurate in the given context.
Option e: 'the unemployment rate exceeds the natural rate of unemployment.' This directly matches the scenario described: at output level Yk (the economy at its potential output) the condition described in the stem or the accompanying answer choice indicates unemployment is above the natural rate, which is consistent with a recessionary or underutilized labor market. Thus, this option accurately reflects the described situation and aligns with standard interpretations of the relationship between unemployment and the output gap at Yk.
In summary, option e correctly describes the macroeconomic condition at output level Yk, while options a through d contain misinterpretations about policy needs, stability of AD, or the relationship between output and unemployment given the context. The reasoning hinges on understanding that unemployment above the natural rate signals underutilized resources, consistent with output at a level associated with potential output but insufficient demand to fully employ all workers, which is captured by option e.

Academic Courses Test#3

At output level Yk,

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Academic Courses Test#3

At output level Yk,

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