The economy is in its short run equilibrium at the point where the
A) AD curve intersects the LAS curve.
B) price level is stable.
C) SAS curve intersects the LAS curve.
D) AD curve intersects the SAS curve.

Question

Quizplus · Accepted Answer

In the short run, the economy is in equilibrium at the point where the aggregate demand (AD) curve intersects the short-run aggregate supply (SAS) curve. This point determines the level of output (GDP) and the price level in the economy. The LAS curve represents the potential output of the economy in the long run, but in the short run, the economy may not be producing at potential due to factors such as cyclical unemployment or underutilization of resources. Therefore, the correct answer is D, as this is where the economy is in balance in the short run.

The Economy Is in Its Short Run Equilibrium at the Point