To find an economy's long-run equilibrium price level, locate the point where ________ and ________ cross and look to the left.
A) demand; supply
B) aggregate demand; short-run aggregate supply
C) aggregate demand; price level
D) long-run aggregate supply; aggregate demand

Question

Quizplus · Accepted Answer

The long-run equilibrium price level is the point where the long-run aggregate supply curve intersects with the aggregate demand curve. This is because in the long run, the economy is able to adjust all factors of production and the economy is operating at its potential output, which is reflected in the long-run aggregate supply curve. The short-run aggregate supply curve is able to shift due to changes in input prices, technology, and expectations, and as a result, it does not represent the long-run equilibrium. The price level is not a curve, but a point on the vertical axis, so it cannot intersect with another curve. Therefore, the correct option is D, long-run aggregate supply and aggregate demand.

To Find an Economy's Long-Run Equilibrium Price Level, Locate the Point