In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of:
A) LRAS and SRAS.
B) LRAS and aggregate demand.
C) SRAS and aggregate demand.
D) potential output and LRAS.

Question

Quizplus · Accepted Answer

In the short run, equilibrium price level and equilibrium level of total output are determined by the intersection of SRAS and aggregate demand. This is because aggregate demand shows the relationship between the price level and the quantity demanded of all goods and services in an economy, while SRAS shows the relationship between the price level and the quantity of output that firms are willing and able to supply. The intersection of these two curves determines the equilibrium price level and the equilibrium level of total output in the short run.

In the Short Run, the Equilibrium Price Level and the Equilibrium