The intersection of the aggregate demand curve and the short-run aggregate supply curve determines:
A)Current inflation, but not current output
B)Potential output
C)Current output, but not current inflation
D)Current output and current inflation

Question

Quizplus · Accepted Answer

The intersection of the aggregate demand curve and the short-run aggregate supply curve is the point where the economy is in both equilibrium in terms of output and inflation. This is because the AD-AS model shows the relationship between overall price levels and the quantity of goods and services produced, so the intersection shows the point where producers are willing to supply the quantity of goods and services demanded at the prevailing price level, and the economy is producing output at its current level while also experiencing a certain level of inflation.

The Intersection of the Aggregate Demand Curve and the Short-Run