When does long-run macroeconomic equilibrium occur?
A)When aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve.
B)When aggregate demand equals short-run aggregate supply.
C)When unemployment equals zero.
D)When output is above potential GDP.

Question

Quizplus · Accepted Answer

Long-run macroeconomic equilibrium occurs when aggregate demand equals the long-run aggregate supply, which is vertical and represents the economy's potential output. In the short run, the aggregate supply curve can shift due to changes in input prices or productivity, causing output to deviate from potential. However, in the long run, those changes are reflected in higher or lower input prices, and the aggregate supply curve shifts back to its original position. The point where aggregate demand intersects the long-run aggregate supply curve is the economy's potential output, and when it also intersects the short-run aggregate supply, it indicates that the economy is producing at its potential with stable prices.

When Does Long-Run Macroeconomic Equilibrium Occur