In the aggregate demand/aggregate supply model, a country's full-employment real GDP is represented by:
A) prices.
B) aggregate demand.
C) aggregate supply.
D) an increase in the general level of prices.

Question

Quizplus · Accepted Answer

Full-employment real GDP is the level of output that an economy can produce with all resources fully utilized. This is represented by the intersection of the long-run aggregate supply curve and the aggregate demand curve, which is shown as point E in the AD/AS model. Therefore, the correct choice is C, aggregate supply. Prices and an increase in the general level of prices may affect the level of output, but they are not the representation of full-employment real GDP. Aggregate demand also affects the level of output, but it needs to intersect with the long-run aggregate supply curve to indicate the full-employment real GDP.

In the Aggregate Demand/aggregate Supply Model, a Country's Full-Employment Real