Multiple Choice
At which point on a country's production possibilities frontier (PPF) is its future growth rate likely to be the highest, and why?
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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
Unemployment is always zero.
B
There is no tendency for the overall price level to change.
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 prevailing price level.
Step 2: Recognize that in macroeconomic equilibrium, the overall price level tends to be stable because there is no excess demand or supply putting upward or downward pressure on prices.
Step 3: Note that the level of output is stable in equilibrium since firms produce exactly the amount demanded, so there is no incentive to change production levels.
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 stability, output stability, and equality of aggregate demand and supply are true.
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