The actual price level is determined by
A) government policy.
B) the intersection of short-run aggregate supply and aggregate demand.
C) microeconomic equilibrium.
D) monopolists.

Question

Quizplus · Accepted Answer

The actual price level in an economy is determined by the intersection of short-run aggregate supply (SRAS) and aggregate demand (AD) in the economy. The AD and SRAS curves represent the overall spending and production in the economy respectively, and the intersection of these two curves gives us the equilibrium price level at which both buyers and sellers are satisfied. Government policy or monopolists may impact the economy, but they do not directly determine the actual price level. Microeconomic equilibrium also does not determine the overall price level in the economy.

The Actual Price Level Is Determined by