In long-run full-employment equilibrium, the CPI equals AD equals SRAS equals LRAS.

Question

Quizplus · Accepted Answer

In long-run full-employment equilibrium, the economy is producing at its potential output, which is determined by the LRAS. At this level of output, the price level is stable, as it is consistent with the level of aggregate demand (AD) and the SRAS. Therefore, the CPI, AD, SRAS, and LRAS all converge at the same point in the long-run full-employment equilibrium.

In Long-Run Full-Employment Equilibrium, the CPI Equals AD Equals SRAS