Question

which of the following statements is true according to the graph? a.) the economy is producing the maximum amount possible given the current resources. b.) the economy is producing at a real gdp greater than lras. c.) the unemployment rates are falling. d.) the level of output cannot be sustained indefinitely.

Answer 1

Based on the above graph, the statement that is true according to the graph is option b.) the economy is producing at a real GDP greater than LRAS.

LRAS (Long-Run Aggregate Supply) is known to be one that represents the maximum level of output an economy can sustainably produce given its resources and technology. It is a horizontal line, indicating that the economy cannot produce beyond this level in the long run.

So, In the above graph, the AD curve intersects the SRAS curve at a point above the LRAS line. This indicates that the economy is currently producing at a real GDP greater than its long-run potential. This could be due to factors like expansionary fiscal or monetary policies, which artificially boost aggregate demand.