The short-run equilibrium in the dynamic model of aggregate demand and supply determines the:
A) inflation rate and inflation target.
B) real interest rate and natural level of output.
C) level of output and inflation rate.
D) natural level of output and level of output.

Question

Quizplus · Accepted Answer

In the short-run equilibrium, the level of output and the inflation rate are determined by the interaction of aggregate demand with the short-run aggregate supply. The real interest rate and natural level of output are not directly determined in the short-run equilibrium.

The Short-Run Equilibrium in the Dynamic Model of Aggregate Demand