Multiple Choice
Compared to other recessions since World War II, which of the following characteristics best describes the Great Recession of 2007–2009?
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1. Introduction to Macroeconomics
Introduction to Economics
Multiple Choice
Which statement is NOT true of full-employment output (y*)?
A
It is also referred to as potential output.
B
It represents the level of output when all resources are used efficiently.
C
It occurs when the unemployment rate is zero.
D
It is the maximum sustainable output an economy can produce without causing inflation.
Verified step by step guidance1
Step 1: Understand the concept of full-employment output (y*). It is the level of output an economy can produce when all available resources (labor, capital, etc.) are used efficiently, but without causing inflationary pressure.
Step 2: Recognize that full-employment output is also called potential output, which reflects the sustainable maximum output level over the long term.
Step 3: Note that full-employment output does not imply zero unemployment. Instead, it corresponds to the natural rate of unemployment, which includes frictional and structural unemployment but excludes cyclical unemployment.
Step 4: Understand that full-employment output is the maximum sustainable output an economy can maintain without accelerating inflation, meaning it balances resource use and price stability.
Step 5: Identify the incorrect statement by comparing each option to these definitions. The statement claiming full-employment output occurs when the unemployment rate is zero is false because some unemployment always exists even at full employment.
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