At the intersection of the short-run aggregate supply, aggregate demand, and the potential output line economy is in:
A) short-run equilibrium but not necessarily at potential output.
B) at potential output but not necessarily short-run equilibrium.
C) short-run equilibrium and at potential output.
D) neither short-run equilibrium nor at potential output.

Question

Quizplus · Accepted Answer

When the short-run aggregate supply (SRAS) curve intersects with the aggregate demand (AD) curve at the potential output line, the economy is considered to be in short-run equilibrium and operating at its potential output. This scenario reflects an ideal state where the economy's actual output matches its potential output, indicating full employment and optimal resource utilization without inflationary or deflationary pressures.

At the Intersection of the Short-Run Aggregate Supply, Aggregate Demand