Which of the following statements about the AD/AS macro model in the long run is correct?
A)Both real GDP and the price level are determined by aggregate demand.
B)Both real GDP and the price level are determined by Y*.
C)Long-run real GDP is determined by Y* and the long-run price level by the AD curve.
D)Real GDP is determined by aggregate demand and the price level by Y*.
E)Long-run real GDP is determined by aggregate demand and the price level is determined solely by the AS curve.

Question

Quizplus · Accepted Answer

In the long run, the economy is at its potential output level (Y*) and the price level is determined by the aggregate demand curve intersecting with the long-run aggregate supply curve. Therefore, both long-run real GDP and the long-run price level are determined by Y* and the AD curve, respectively.

Which of the Following Statements About the AD/AS Macro Model