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

Question

Quizplus · Accepted Answer

Long-run macroeconomic equilibrium occurs when aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run aggregate supply curve. This is because in the long-run, prices and wages have adjusted to their equilibrium levels, so the economy is producing at its potential output level (potential GDP) and there is no inflationary or recessionary pressures. Structural and frictional unemployment may still exist in this situation. Therefore, option B is the correct answer.

Long-Run Macroeconomic Equilibrium Occurs When