The economy is in its short run equilibrium at the point where the
A) AD curve intersects the LAS curve.
B) AD curve intersects the SAS curve.
C) SAS curve intersects the LAS curve.
D) price level is stable.

Question

Quizplus · Accepted Answer

In the short run, the economy is at equilibrium where the AD curve intersects the SAS curve because this is where aggregate demand equals aggregate supply, and the price level and real output are determined. The LAS curve represents the potential output of the economy in the long run and is not relevant to the determination of short run equilibrium. Stability of the price level is not necessarily indicative of short run equilibrium.

The Economy Is in Its Short Run Equilibrium at the Point