Long-run macroeconomic equilibrium occurs when
A)aggregate demand equals short-run aggregate supply.
B)aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve.
C)structural and frictional unemployment equals zero.
D)output is above potential GDP.

Question

Quizplus · Accepted Answer

Long-run macroeconomic equilibrium occurs when aggregate demand equals long-run aggregate supply at the potential output level. In the short run, aggregate demand may fluctuate and intersect with short-run aggregate supply at different points. However, in the long run, prices and wages adjust to reach their equilibrium levels, and the economy operates at its potential output level where there is no inflationary or recessionary gaps. This intersection between aggregate demand and long-run aggregate supply occurs at a single point on the long-run supply curve.

Long-Run Macroeconomic Equilibrium Occurs When