Multiple Choice
Which of the following is a major factor in preventing the economy from rapidly adjusting to shocks?
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1. Introduction to Macroeconomics
Introduction to Economics
Multiple Choice
Which one of the following is NOT true when the economy is in macroeconomic equilibrium?
A
There is no tendency for the overall price level to change.
B
Unemployment is always zero.
C
The level of output is stable.
D
Aggregate demand equals aggregate supply.
Verified step by step guidance1
Step 1: Understand the concept of macroeconomic equilibrium. This occurs when aggregate demand (AD) equals aggregate supply (AS), meaning the total quantity of goods and services demanded equals the total quantity supplied at the current price level.
Step 2: Recognize that in macroeconomic equilibrium, the overall price level is stable because there is no pressure for prices to rise or fall when AD equals AS.
Step 3: Note that the level of output is stable in equilibrium since the economy is producing at a level where planned spending matches actual production.
Step 4: Understand that unemployment is not necessarily zero in macroeconomic equilibrium. There can be natural unemployment due to frictional and structural factors even when the economy is in equilibrium.
Step 5: Conclude that the statement 'Unemployment is always zero' is NOT true in macroeconomic equilibrium, while the other statements about price level stability, output stability, and equality of aggregate demand and supply are true.
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