Which of these does not hold true if an economy is simultaneously in long-run and short-run equilibrium?
A) The actual price level equals the expected price level.
B) Aggregate quantity supplied equals potential output.
C) Aggregate quantity demanded equals potential output.
D) Aggregate quantity supplied equals aggregate quantity demanded.
E) The aggregate demand curve is horizontal at the potential output level.

Question

Quizplus · Accepted Answer

If an economy is in long-run and short-run equilibrium, the aggregate demand curve intersects with the aggregate supply curve at the potential output level. This implies that aggregate quantity demanded and aggregate quantity supplied both equal potential output, which is represented by the vertical portion of the aggregate supply curve. Therefore, the aggregate demand curve is not horizontal at the potential output level, which is the characteristic of a short-run macroeconomic equilibrium.

Which of These Does Not Hold True If an Economy