Figure 14-7 In Figure 14-7, short-run equilibrium occurs
A) at point a.
B) at point b.
C) at point c, where the actual price level exceeds the expected price level.
D) at point c, where the actual price level is less than the expected price level.

Question

Figure 14-7  In Figure 14-7, short-run equilibrium occurs
A) at point a. 
B) at point b. 
C) at point c, where the actual price level exceeds the expected price level. 
D) at point c, where the actual price level is less than the expected price level.

Quizplus · Accepted Answer

Short-run equilibrium occurs at point c, where the actual price level exceeds the expected price level. This is because in the short run, prices are sticky and do not adjust quickly to changes in aggregate demand or supply. As a result, when aggregate demand increases, output and prices both increase, but the increase in prices is greater than expected because firms are operating at or near full capacity. This leads to a situation where the actual price level exceeds the expected price level, and short-run equilibrium occurs at point c.

Figure 14-7 in Figure 14-7, Short-Run Equilibrium Occurs