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Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels

-(Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels) The table shows the aggregate demand and short-run aggregate supply curves for an economy. The potential level of output is $7.6 trillion. If policymakers adopt a nonintervention policy, the economy gap
A) would return to potential output at a price level of 2.8.
B) would return to potential output at a price level of 1.2.
C) would return to potential output at a price level of 2.0.
D) would return to long-run equilibrium at an output level of $6 trillion.

Question

Use the following to answer questions .
Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels
 
-(Exhibit: Aggregate Demand and Aggregate Supply at Different Price Levels) The table shows the aggregate demand and short-run aggregate supply curves for an economy. The potential level of output is $7.6 trillion. If policymakers adopt a nonintervention policy, the economy gap
A) would return to potential output at a price level of 2.8. 
B) would return to potential output at a price level of 1.2. 
C) would return to potential output at a price level of 2.0. 
D) would return to long-run equilibrium at an output level of $6 trillion.

Quizplus · Accepted Answer

The nonintervention policy means that the government does not intervene in the economy. In this case, the economy will reach equilibrium at the intersection of the aggregate demand and aggregate supply curves. The equilibrium price level is 2.8 and the equilibrium output level is $7.6 trillion, which is the potential level of output.

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