In the long-run equilibrium
A)output is a function of autonomous expenditures.
B)inflation is a function of past inflation.
C)inflation equals potential output.
D)output equals potential output.

Question

Quizplus · Accepted Answer

In the long-run equilibrium, the economy operates at its potential output level, which is determined by the size of the labor force, the capital stock, and the available technology. Therefore, output equals potential output in the long run. Options A and B are incorrect as they are not true of the long-run equilibrium. Option C is partially correct in that inflation should be equal to the rate of change in potential output, rather than the level of potential output itself, but it is not the best choice as option D is more precise.

In the Long-Run Equilibrium