An economy is in long- run equilibrium when aggregate supply unexpectedly decreases.Then real GDP ceteris paribus) will be
A)below potential GDP.
B)above potential GDP.
C)equal to potential GDP.
D)either above, below, or equal to potential GDP depending on the position of the aggregate demand curve.
E)either above or equal to potential GDP depending on the position of the aggregate demand curve.

Question

Quizplus · Accepted Answer

In long-run equilibrium, the economy is producing at its potential GDP. If aggregate supply unexpectedly decreases, it will lead to higher prices and lower output. As a result, real GDP will be below potential GDP.

An Economy Is in Long- Run Equilibrium When Aggregate Supply