Use the following to answer questions :
Exhibit: Short Run to Long Run
-(Exhibit: Short Run to Long Run) Based on the graph, if the economy starts from a short-term equilibrium at D, then the long-run equilibrium will be at ____ with a _____ price level.
A) B; higher
B) B; lower
C) C; higher
D) C; lower

Question

Use the following to answer questions :
Exhibit: Short Run to Long Run 
-(Exhibit: Short Run to Long Run) Based on the graph, if the economy starts from a short-term equilibrium at D, then the long-run equilibrium will be at ____ with a _____ price level.
A) B; higher 
B) B; lower 
C) C; higher 
D) C; lower

Quizplus · Accepted Answer

According to the graph, if the economy starts from a short-term equilibrium at D (where AD intersects SRAS), the long-run equilibrium will be at point C (where AS intersects AD) with a higher price level. This is because in the long run, prices and wages adjust to their natural levels and output returns to the potential level determined by the economy's productive capacity (shown by the LRAS curve). This causes a shift in the SRAS curve to the left, resulting in a higher price level at the new equilibrium. Therefore, choice C is the correct answer.

Use the Following to Answer Questions