Long-run macroeconomic equilibrium occurs when aggregate demand ________ short-run aggregate supply and they ________ the long-run supply curve.
A)equals;intersect at a point to the right of
B)equals;intersect at a point on
C)is greater than;intersect at a point to the left of
D)is less than;intersect at a point to the right of

Question

Quizplus · Accepted Answer

Long-run macroeconomic equilibrium occurs when aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve, reflecting a sustainable level of output, employment, and price level. Option A suggests a situation of inflationary gap with demand exceeding the potential supply in the long-run, and hence, the equilibrium point would shift to the right. Option C implies a recessionary gap, where demand falls short of the potential long-run supply, and the equilibrium point would shift to the left. Option D is incorrect as it suggests that the equilibrium point lies to the right of the long-run supply curve, which violates the concept of sustainable equilibrium.

Long-Run Macroeconomic Equilibrium Occurs When Aggregate Demand ________ Short-Run Aggregate