Consider an aggregate demand / aggregate supply diagram. The intersection of the vertical aggregate supply curve and the aggregate demand curve determines the
A) short-run levels of prices and output.
B) short-run and long-run levels of prices and output.
C) long-run levels of prices and output.
D) short-run level of output and the long-run level of prices.

Question

Quizplus · Accepted Answer

The intersection of the vertical aggregate supply curve and the aggregate demand curve determines the long-run levels of prices and output, as the vertical aggregate supply curve represents the economy's potential output, which does not change with the price level in the long run.

Consider an Aggregate Demand / Aggregate Supply Diagram