The long-run equilibrium price level is the price level the economy is expected to reach when the
A) economy produces its potential output
B) Fed has stabilized interest rates
C) federal budget is balanced
D) discount rate equals the prime rate
E) inflation rate is zero

Question

Quizplus · Accepted Answer

The long-run equilibrium price level is determined by potential output, which is the level of output that can be sustained without causing inflation or deflation. When the economy produces at potential output, there is a balance between aggregate demand and aggregate supply, causing prices to stabilize at the long-run equilibrium price level. The other options listed do not directly impact the determination of the long-run equilibrium price level.

The Long-Run Equilibrium Price Level Is the Price Level the Economy