Suppose we are on the economy's SP curve for pe = 0.Currently x = p = 7.We cannot be in long-run equilibrium because this long-run equilibrium conditions is being violated:
A)p must equal zero.
B)y must equal zero.
C)x must equal zero.
D)p must equal pe.

Question

Quizplus · Accepted Answer

In long-run equilibrium, the actual price level (p) must equal the expected price level (pe). Since we are on the SP curve for pe = 0 and currently x = p = 7, we know that p is not equal to pe and therefore we are not in long-run equilibrium. Choice D correctly identifies this condition as being violated. Choices A, B, and C are not accurate in describing the long-run equilibrium condition.

Suppose We Are on the Economy's SP Curve for Pe