The short-run equilibrium level of real GDP and inflation is given by the intersection of:
A)the aggregate demand curve and the long-run aggregate supply
B)the aggregate demand curve and the short-run aggregate supply
C)the aggregate demand curve, the short-run aggregate supply and the long-run aggregate supply
D)the aggregate demand curve and the zero inflation line

Question

Quizplus · Accepted Answer

In the short run, the equilibrium level of real GDP and inflation is determined by the intersection of the aggregate demand curve and the short-run aggregate supply curve. The long-run aggregate supply curve only affects the economy's potential output, but not the short-run equilibrium level of real GDP and inflation. The zero inflation line is not a determinant of the short-run equilibrium level. Therefore, the correct answer is (B) the aggregate demand curve and the short-run aggregate supply.

The Short-Run Equilibrium Level of Real GDP and Inflation Is