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

Question

Quizplus · Accepted Answer

In long-run macroeconomic equilibrium, real GDP equals potential GDP, meaning the economy is producing at its full potential and there are no cyclical unemployment or inflationary pressures. This occurs when the economy reaches the intersection of the long-run aggregate supply curve and aggregate demand curve. The price level may adjust to reach this equilibrium, but it is not fixed or determined solely by aggregate demand.

In Long- Run Macroeconomic Equilibrium