The correct option for full-employment level of output.
Answer to Problem 7MCQ
From the available options, the correct option is potential output.
Explanation of Solution
The full-employment level of output corresponds to potential output because when an economy has full employment level then it means the economy is matching its potential output. Therefore, all other options are incorrect because horizontal intercept in long run, sticky wages, and short-run equilibrium do not show that there is full employment in the economy. This happens because some prices are persistent in the short term which implies that producers may alter their output in response to changes in the price level. And, the economy would be in long-run equilibrium if the current output is equivalent to the output at full employment.
Therefore, the correct option is a (potential output).
Introduction: When there is no existence of
Chapter 18 Solutions
Krugman's Economics For The Ap® Course
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