Chapter 19, Problem 4MCQ

To determine

The correct option when economy is operating at P₁ and Y₁.

Answer to Problem 4MCQ

From the available options, the correct option is the economy is in short run macroeconomic equilibrium

Explanation of Solution

The economy would be in short run macroeconomic equilibrium because this economy is operating at P₁ and Y₁ as the quantity supplied under the of aggregate output would be equal to the quantity demanded of aggregate output. Whereas, the quantity demanded and quantity supplied for long-run would not be equal and any gap, rise, or shift of wages as they cannot make the economy to operate at P₁ and Y_1.

Therefore, the correct option is b (the economy is in short run macroeconomic equilibrium) and other all options are incorrect.

Economics Concept Introduction

Introduction: In short-run macroeconomic, wages and prices do not impact the economic conditions but the period of long-run macroeconomic affects the economic conditions.