Consider an aggregate demand / aggregate supply diagram. The intersection of the relatively flat, upward-sloping aggregate supply curve and the aggregate demand curve determines the
A) short-run levels of prices and output.
B) short-run and long-run levels of prices and output.
C) long-run levels of prices and output.
D) short-run level of prices and the long-run level of output.

Question

Quizplus · Accepted Answer

The intersection of the relatively flat, upward-sloping aggregate supply curve and the aggregate demand curve determines the short-run levels of prices and output. In the short run, the economy can produce more output by increasing the utilization of existing resources, resulting in a relatively flat aggregate supply curve. However, in the long run, the economy reaches its full potential output, and the aggregate supply curve becomes steeper. Therefore, the intersection of the aggregate demand and a steep aggregate supply curve determines the long-run levels of prices and output.

Consider an Aggregate Demand / Aggregate Supply Diagram