Exhibit 15-4
-In Exhibit 15-4,short-run equilibrium occurs
A)at point a
B)at point b
C)at point c,where the actual price level exceeds the expected price level
D)at point c,where the actual price level is less than the expected price level
E)at point c,where there is a contractionary gap

Question

Exhibit 15-4 
-In Exhibit 15-4,short-run equilibrium occurs
A)at point a 
B)at point b 
C)at point c,where the actual price level exceeds the expected price level 
D)at point c,where the actual price level is less than the expected price level 
E)at point c,where there is a contractionary gap

Quizplus · Accepted Answer

Short-run equilibrium occurs at point c, where the actual price level exceeds the expected price level. This is indicated by the intersection of the AD and SRAS curves at point c. At this point, firms are producing output at a level where the actual price level is higher than what was expected, which creates an incentive for them to increase output and prices (shifting the SRAS curve to the right). As a result, the economy will eventually move towards the long-run equilibrium at point b.

Exhibit 15-4 -In Exhibit 15-4,short-Run Equilibrium Occurs