Chapter 18, Problem 7MCQ

To determine

The correct option for full-employment level of output.

Answer to Problem 7MCQ

From the available options, the correct option is potential output.

Explanation of Solution

The full-employment level of output corresponds to potential output because when an economy has full employment level then it means the economy is matching its potential output. Therefore, all other options are incorrect because horizontal intercept in long run, sticky wages, and short-run equilibrium do not show that there is full employment in the economy. This happens because some prices are persistent in the short term which implies that producers may alter their output in response to changes in the price level. And, the economy would be in long-run equilibrium if the current output is equivalent to the output at full employment.

Therefore, the correct option is a (potential output).

Economics Concept Introduction

Introduction: When there is no existence of unemployment of cyclical unemployment in the economy and all resources all used efficiently then there would be full employment level of output in the economy.