Using the IS curve , in the long run,
________ and ________, so that the economy is ________.
A) equals one; ; in recession
B) is greater than one; ; at its long-run equilibrium
C) equals zero; ; at its long-run equilibrium
D) equals one; ; expanding
E) equals one; ; in recession

Question

Using the IS curve  , in the long run, 
________ and ________, so that the economy is ________.
A) equals one; ; in recession 
B) is greater than one; ; at its long-run equilibrium 
C) equals zero; ; at its long-run equilibrium 
D) equals one; ; expanding 
E) equals one; ; in recession

Quizplus · Accepted Answer

In the long run, prices are flexible and can adjust to changes in the economy. This means that the IS curve shifts until it intersects with the vertical line representing potential output. At this point, output is at its long-run equilibrium level and the economy has fully adjusted to any shocks or changes. This intersection point occurs when the IS curve is tangent to the potential output line, which means that the slope of the IS curve equals zero. Therefore, the answer is C, where the slope of the IS curve equals zero and the economy is at its long-run equilibrium.

Using the IS Curve , in the Long Run