If the economy is simultaneously in long-run and short-run equilibrium,which of the following is not true?
A)The actual price level equals the expected price level.
B)Aggregate quantity supplied equals potential output.
C)Aggregate quantity demanded equals potential output.
D)Aggregate quantity supplied equals aggregate quantity demanded.
E)The aggregate demand curve is horizontal at the potential output level.

Question

Quizplus · Accepted Answer

If the economy is in long-run and short-run equilibrium, the aggregate demand curve is not necessarily horizontal at the potential output level. It can be upward sloping or downward sloping depending on the specific circumstances of the economy. Therefore, choice E is not necessarily true in this situation. The other choices are true because long-run equilibrium implies that aggregate quantity supplied equals potential output and short-run equilibrium implies that aggregate quantity demanded equals aggregate quantity supplied, which is also equal to potential output in this case. Additionally, the price level is expected to be equal to the actual price level in equilibrium.

If the Economy Is Simultaneously in Long-Run and Short-Run Equilibrium,which