Figure 11.2 shows the relationship between the price level and real GDP. Which of the following is the long-run equilibrium point?

A) A point between e* and e''
B) e''
C) e*
D) e'
E) e

Question

Figure 11.2 shows the relationship between the price level and real GDP. Which of the following is the long-run equilibrium point?

A) A point between e* and e'' 
B) e'' 
C) e* 
D) e' 
E) e

Quizplus · Accepted Answer

The long-run equilibrium point is where the aggregate demand curve intersects the long-run aggregate supply curve, which is point e* in this graph. This is where the economy is producing at its potential output level and the price level is stable over time.

Figure 112 Shows the Relationship Between the Price Level and Real