A long run equilibrium:
A)Will be at a greater output level than the natural level of real output.
B)Will be at the natural level of real output.
C)Will be at a smaller output level than the natural level of real output.
D)Long-run equilibrium could be at any of the above levels of output.

Question

A long run equilibrium:
A)​Will be at a greater output level than the natural level of real output.
B)​Will be at the natural level of real output.
C)​Will be at a smaller output level than the natural level of real output.
D)​Long-run equilibrium could be at any of the above levels of output.

Quizplus · Accepted Answer

In the long run, prices and wages are flexible and can adjust to any changes in the economy, meaning that the economy will always gravitate towards its natural level of output, which represents the level of output that can be sustained in the long run without generating excessive inflationary pressures or causing unnecessary unemployment. Therefore, the long run equilibrium will always occur at this natural level of output where aggregate demand equals potential output.

A Long Run Equilibrium