In the long run,
A)GDP potential GDP.
B)unemployment is at its natural rate.
C)LRAS and SRAS lie on the same line.
D)the inflation rate is zero.
E)the aggregate demand curve becomes flat.

Question

In the long run,
A)GDP > potential GDP.
B)unemployment is at its natural rate.
C)LRAS and SRAS lie on the same line.
D)the inflation rate is zero.
E)the aggregate demand curve becomes flat.

Quizplus · Accepted Answer

In the long run, the economy will eventually reach its potential GDP, which means that the economy will be at full employment and unemployment will be at its natural rate. This is known as the long-run equilibrium. However, it is not necessarily the case that GDP will be greater than potential GDP, there may be periods of economic slowdown or recession. LRAS and SRAS may not necessarily lie on the same line, and the inflation rate may not necessarily be zero. The aggregate demand curve may also not necessarily become flat.

In the Long Run