In short- run macroeconomic equilibrium
A) real GDP and the price level are determined by short- run aggregate supply and aggregate demand.
B) real GDP equals potential GDP and aggregate demand determines the price level.
C) real GDP is less than potential GDP.
D) the price level is fixed and short- run aggregate supply determines real GDP.

Question

Quizplus · Accepted Answer

In short-run macroeconomic equilibrium, real GDP and the price level are determined by the intersection of short-run aggregate supply and aggregate demand curves. This means that both real GDP and the price level are endogenously determined by the behavior of households, businesses, and government in the short run. Option B is incorrect because in short-run equilibrium, real GDP can be either greater or less than potential GDP. Option C is incorrect because it assumes that potential GDP is equal to actual GDP, which is not necessarily true in the short run. Option D is incorrect because the price level is not fixed in the short run, but is determined by the aggregate demand for goods and services.

In Short- Run Macroeconomic Equilibrium