In long-run macroeconomic equilibrium,
A) the price level is fixed and aggregate demand determines real GDP.
B) real GDP equals potential GDP.
C) real GDP is less than potential GDP.
D) real GDP and the price level are determined by short-run aggregate supply and aggregate demand and long-run aggregate supply is irrelevant.

Question

Quizplus · Accepted Answer

In long-run macroeconomic equilibrium, real GDP equals potential GDP, indicating that the economy is producing at its full capacity without any upward or downward pressure on the price level. This is because the long-run aggregate supply curve is vertical at the potential GDP level, meaning that changes in aggregate demand only lead to changes in the price level and not real GDP.

In Long-Run Macroeconomic Equilibrium