In short-run macroeconomic equilibrium
A) real GDP equals potential GDP and aggregate demand determines the price level.
B) the price level is fixed and short-run aggregate supply determines real GDP.
C) real GDP and the price level are determined by short-run aggregate supply and aggregate demand.
D) real GDP is less than potential GDP.

Question

Quizplus · Accepted Answer

In the short-run macroeconomic equilibrium, both real GDP and the price level are determined by the intersection of short-run aggregate supply and aggregate demand curves. This means that changes in either aggregate demand or short-run aggregate supply will affect both the price level and real GDP. Therefore, choice C is the most accurate answer.

In Short-Run Macroeconomic Equilibrium