The economy is in short-run equilibrium:
A)when the AD and AS curves intersect at potential output Y*.
B)when the AD and AS curves intersect at a level of real GDP that is above or below Y*.
C)when the AD and AS curves become vertical.
D)at the peak of the business cycle.

Question

Quizplus · Accepted Answer

In the short-run equilibrium, the aggregate demand (AD) and aggregate supply (AS) curves intersect at a level of real GDP that can be above or below the potential output (Y*), reflecting either an inflationary or recessionary gap.

The Economy Is in Short-Run Equilibrium