Long-run macroeconomic equilibrium occurs when
A)the aggregate demand curve intersects the short-run aggregate supply curve.
B)the aggregate demand and short-run aggregate supply curves intersect at a point on the long-run aggregate supply curve.
C)structural and frictional unemployment equal zero.
D)output is above potential GDP.

Question

Quizplus · Accepted Answer

Long-run macroeconomic equilibrium occurs when the aggregate demand and short-run aggregate supply curves intersect at a point on the long-run aggregate supply curve. This is because in the long-run, wages and prices are flexible and adjust to changes in the economy, allowing the economy to reach its potential GDP without inflationary or recessionary pressures. Option A is incorrect because short-run equilibrium may not reflect a sustainable macroeconomic equilibrium. Option C is incorrect because structural and frictional unemployment may still exist even in long-run equilibrium. Option D is incorrect because being above potential GDP would suggest inflationary pressures rather than equilibrium.

Long-Run Macroeconomic Equilibrium Occurs When