Long-run macroeconomic equilibrium occurs when
A) real GDP is at a point along the short-run aggregate supply curve.
B) the unemployment rate is zero.
C) real GDP is equal to potential GDP.
D) all able-bodied adults have jobs.

Question

Quizplus · Accepted Answer

In long-run macroeconomic equilibrium, real GDP is equal to potential GDP, which means that the economy is producing at its full capacity level without putting pressure on prices. This is because, in the long run, all resources are fully utilized, the economy fully adapts to any changes in policy, and there is no cyclical unemployment, which leads to a stable price level. Therefore, option C is the correct answer. Option A is incorrect because a point along the short-run aggregate supply curve could be above or below potential GDP. Option B is incorrect because zero unemployment is not a realistic goal or necessary condition for the long-run macroeconomic equilibrium. Option D is incorrect because all able-bodied adults having jobs is not a sufficient or necessary condition for the long-run macroeconomic equilibrium.

Long-Run Macroeconomic Equilibrium Occurs When