Long-run equilibrium will occur at the price level at which
A) the long-run aggregate demand and short-run aggregate supply curves intersect.
B) the aggregate demand and short-run aggregate supply curves intersect.
C) the aggregate demand and long-run aggregate supply curves intersect.
D) the short-run aggregate supply and long-run aggregate supply curves intersect.

Question

Quizplus · Accepted Answer

Long-run equilibrium occurs when the aggregate demand curve intersects with the long-run aggregate supply curve. This is because the long-run aggregate supply curve represents the economy's potential output level, while the aggregate demand curve represents the level of output that consumers and businesses demand at a given price level. In the long run, prices and wages are flexible, allowing the economy to reach its potential output level. Therefore, at the intersection of these two curves, there will be no pressure for prices to change, and the economy will be in a state of long-run equilibrium.

Long-Run Equilibrium Will Occur at the Price Level at Which