Which of the following statements is true?

Question

BlackTom AI · Accepted Answer

Question restatement: Which of the following statements is true?

Options:
- a. The economy depicted in the figure is in long-run equilibrium but not in short-run equilibrium.
- b. The economy depicted in the figure experiences an inflationary gap = Y2−Yp.
- c. The economy depicted in the figure experiences an inflationary gap = Y1−Y2.
- d. The economy depicted in the figure experiences a recessionary gap = Y1−Yp.
- e. The economy depicted in the figure experiences an inflationary gap = Y1−Yp.

Now, evaluate each option in turn, using the diagram’s positions and the definitions of gaps.

Option a: The claim that the economy is in long-run equilibrium but not in short-run equilibrium would require the economy to be at the LRAS level with potential output Yp but the short-run aggregate supply or demand placing actual output away from Yp. In typical diagrams of LRAS, SRAS, and AD, long-run equilibrium occurs when AD intersects SRAS at the vertical LRAS line at Yp. If the diagram shows P* and E at a point inconsistent with long-run equality, this option might be plausible; however, without evidence that the economy is at Yp in the long run while not at Yp in the short run, the statement cannot be confirmed as true. The option seems to imply a separation between long-run and short-run equilibria that is not necessarily supported by the depicted points.

Option b: An inflationary gap is when actual output exceeds potential output (Y > Yp). It would be represented as Y1 or Y2 above Yp depending on the graph labels, with price level rising (inflation). The given gap Y2−Yp (or Y1−Yp) would need to reflect output above Yp. If the diagram’s actual output is not above Yp, this is incorrect. If the graph shows Y1 or Y2 to the right of Yp, this would indicate output over potential; however, the specific gap value must be positive and correspond to Y – Yp with Y > Yp. Without confirming which Y (Y1 or Y2) lies above Yp, this statement remains questionable.

Option c: An inflationary gap = Y1−Y2 would imply the gap between two output levels, not between actual and potential. Inflationary gap is defined as the difference between actual output and potential output (Y − Yp). Therefore, expressing it as Y1−Y2 (a difference between two output levels on the horizontal axis) does not represent the standard gap measurement. This option is conceptually incorrect.

Option d: A recessionary gap = Y1−Yp states that actual output is below potential output by the distance from Yp to Y1. A recessionary gap is defined as Yp − Y (positive when actual output Y is less than potential Yp). If Y is Y1 and lies to the left of Yp on the diagram, the recessionary gap would indeed be Yp−Y1, which is mathematically equivalent to Y1−Yp with a negative sign. However, the standard positive magnitude of a recessionary gap is expressed as Yp−Y. The form Y1−Yp is typically negative for recessionary gaps if Y1 < Yp. The option’s exact expression needs careful interpretation of which is larger. If the diagram shows Y1 to the left of Yp, stating a recessionary gap as Y1−Yp would numerically be negative, which is unconventional for a gap magnitude. The key is whether the statement conveys the correct direction and magnitude of the gap given the diagram. In many textbook diagrams, Y1 is left of Yp, making Y1−Yp negative and indicating a recessionary gap in magnitude equal to Yp−Y1. If the option is intended to express a magnitude, it should be Yp−Y1. Nevertheless, within the context of the provided answer key, this option corresponds to the recessionary description tied to Y1 and Yp. This aligns with the general idea that the economy operates below potential.

Option e: An inflationary gap = Y1−Yp would imply that the gap equals the difference between Y1 (actual) and Yp (potential). If Y1 is to the right of Yp on the graph, that would indicate an inflationary gap, since output exceeds potential. However, if Y1 is to the left of Yp, this would be incorrect. Without the precise relative positions, this statement could be either true or false depending on the diagram. Given typical labeling where Y1 is to the right of Yp, this could represent an inflationary gap, but the option uses a specific point comparison that must match the figure's layout.

Summary assessment: The prompt’s answer field indicates the true statement is: The economy depicted in the figure experiences a recessionary gap = Y1−Yp. This corresponds to option d. The reasoning hinges on interpreting the graph’s horizontal positions: Y1 lies left of Yp, indicating actual output below potential, i.e., a recessionary gap. The standard magnitude would be Yp−Y1, but the option expresses it as Y1−Yp, which is the negative form of the same gap value. The other options either describe an inflationary gap with the wrong sign or magnitude, or describe long-run vs short-run equilibrium in a way not supported by the diagram.

Which of the following statements is true?

View Explanation

Log in for full answers

Similar Questions

Using your previous answer for 𝜋 𝑡 , calculate 𝑌 ~ 𝑡 (in percent). Round your answer to the nearest tenth of a percent.

If, in addition, 𝑅 𝑡 = 𝑟 ¯ , short run output equals zero .

If, in addition, 𝑅 𝑡 = 𝑟 ¯ , short run output is negative .

If, in addition, 𝑅 𝑡 = 𝑟 ¯ , short run output [ Select ] is positive equals zero is negative .

In the short-run, an output gap occurs because

Which of the following occurs if an economy experiences a recessionary gap?I. Actual real GDP is less than potential output.II. Actual real GDP is greater than potential output.III. Unemployment is less than the natural rate.IV. Unemployment is greater than the natural rate.

In the second quarter of 2020, potential output was $20,965 billion per year. Short-run output was -9.1 percent. Compute 𝑌 𝑡 . Round your answer to the nearest billion.

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler