Multiple Choice
In macroeconomics, what name is given to the costs that businesses incur when changing their prices?
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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
Firms have no incentive to change their level of output.
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, there is no inherent pressure for the overall price level to change because the quantity demanded matches the quantity supplied, so prices tend to be stable.
Step 3: Note that firms have no incentive to change their level of output in equilibrium since the amount they produce is exactly what consumers want to buy, so production levels are stable.
Step 4: Understand that while equilibrium implies balance in output and prices, it does not imply that unemployment is zero. There can still be natural unemployment due to frictional or 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, whereas the other statements correctly describe conditions of equilibrium.
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