In short-run macroeconomic equilibrium
A) real GDP equals potential GDP and aggregate demand determines the price level.
B) real GDP and the price level are determined by short-run aggregate supply and aggregate demand.
C) the price level is fixed and short-run aggregate supply determines real GDP.
D) real GDP is less than potential 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. This means that both the level of output and the price level can be influenced by changes in either aggregate demand or aggregate supply in the short run. Option A is incorrect because real GDP may be below or above potential GDP in the short run. Option C is incorrect because the price level is not fixed in the short run. Option D is also incorrect as it is not always true that real GDP is less than potential GDP in the short run.

In Short-Run Macroeconomic Equilibrium