In the long run in the AD/AS macro model we can say that
A)both real GDP and the price level are determined by aggregate demand.
B)both real GDP and the price level are determined by Y*.
C)long-run real GDP is determined by Y* and the long-run price level by the AD curve.
D)real GDP is determined by aggregate demand and the price level by Y*.
E)long-run real GDP is determined by aggregate demand and the price level is determined solely by the AS curve.

Question

Quizplus · Accepted Answer

In the long run, the economy reaches equilibrium at potential GDP (Y*), which is determined by the factors of production and technology. The price level is determined by the AD curve, with the relation that when AD equals potential GDP, the price level stabilizes at the long-run equilibrium level. Therefore, long-run real GDP is determined by Y* and the long-run price level by the AD curve.

In the Long Run in the AD/AS Macro Model We