At arrow 2, the economy is in an above full-employment equilibrium and the intersection of the AD and SAS curves is to the right of the LAS curve. option C. an above; right is the correct answer.
What does this mean?
1. Above Full-Employment Equilibrium: This suggests that the economy is producing more than the level of output associated with full employment. It might indicate an overheating economy where resources are being utilized at a level beyond their sustainable capacity.
2. Intersection of AD and SAS Curves to the Right of the LAS Curve: This implies that the economy is currently operating beyond its long-run potential. In the long run, the economy tends to return to the full-employment level of output, which is represented by the LAS curve. If the intersection of AD and SAS is to the right of LAS, it suggests a situation where the economy is temporarily producing more than its long-run capacity.
3. Option C - "An Above; Right" is the Correct Answer: This statement confirms that the economy is above full employment, and the intersection of AD and SAS is to the right of the LAS curve.