What does the long-run equilibrium price level represent?
A) the price level the economy is expected to reach when the economy produces its potential output
B) the price level the economy is expected to reach when interest rates are stabilized
C) the price level the economy is expected to reach when the federal budget is balanced
D) the price level the economy is expected to reach when the discount rate equals the prime rate

Question

What does the long-run equilibrium price level represent?  
A) the price level the economy is expected to reach when the economy produces its potential output 
B) the price level the economy is expected to reach when interest rates are stabilized 
C) the price level the economy is expected to reach when the federal budget is balanced 
D) the price level the economy is expected to reach when the discount rate equals the prime rate

Quizplus · Accepted Answer

The long-run equilibrium price level represents the price level the economy is expected to reach when the economy produces its potential output. This occurs when aggregate demand equals potential output in the long run, resulting in stable prices. The other options, B, C, and D, do not directly relate to the equilibrium price level in the long run.

What Does the Long-Run Equilibrium Price Level Represent