The figure below reflects the inverse relationship between real GDP and the price level. If the economy is initially at point c and aggregate demand is stable, in the long run, the economy will:

A) move toward point a
B) move toward point b
C) stay at point c
D) move toward point d
E) move toward point f

Question

The figure below reflects the inverse relationship between real GDP and the price level. If the economy is initially at point c and aggregate demand is stable, in the long run, the economy will:

A) move toward point a 
B) move toward point b 
C) stay at point c 
D) move toward point d 
E) move toward point f

Quizplus · Accepted Answer

According to the figure, point c is the long-run equilibrium, where the AD curve intersects the LRAS curve. Therefore, there is no tendency for the economy to move toward any other point in the long run, as long as aggregate demand remains stable.

The Figure Below Reflects the Inverse Relationship Between Real GDP