In the short run, the point on the aggregate demand curve where an economy will end up depends on:
A) the money supply.
B) the long-run rate of inflation.
C) potential output.
D) the short-run aggregate supply curve.

Question

Quizplus · Accepted Answer

In the short run, the point on the aggregate demand curve where an economy will end up depends on the position of the short-run aggregate supply curve. This is because in the short run, prices are sticky and do not adjust instantly to changes in demand. Therefore, any shift in demand will lead to a movement along the short-run aggregate supply curve until it reaches the point where it intersects with the aggregate demand curve. The other options - money supply, long-run rate of inflation, and potential output - may affect the position of the aggregate demand curve in the long run but do not directly determine the short-run equilibrium point.

In the Short Run, the Point on the Aggregate Demand