In order for the economy to be in long-run equilibrium,
A)price expectations must be accurate.
B)the economy is on an SP curve.
C)y = p.
D)All of the above.

Question

Quizplus · Accepted Answer

Accurate price expectations ensure that the price level remains stable and does not fluctuate, leading to a stable aggregate demand (AD) curve. In long-run equilibrium, the economy operates on the short-run aggregate supply (SRAS) curve where output (Y) is equal to potential output (Yp), which is represented by the long-run aggregate supply (LRAS) curve. This implies that y=p, which is called the natural rate of output and price level. Thus, accurate price expectations (A), an SP curve (B), and y=p (C) are all necessary conditions for the economy to be in long-run equilibrium. Therefore, D is the correct answer.

In Order for the Economy to Be in Long-Run Equilibrium