The intersection of the economy's aggregate demand and long-run aggregate supply curves
I. determines its equilibrium real GDP in both the long run and the short run.
II. determines its equilibrium price level in both the long run and the short run.
III. occurs at the economy's potential output.
A) I, II, and III
B) I and III only
C) II and III only
D) III only

Question

The intersection of the economy's aggregate demand and long-run aggregate supply curves 
I. determines its equilibrium real GDP in both the long run and the short run.
II. determines its equilibrium price level in both the long run and the short run.
III. occurs at the economy's potential output.
A) I, II, and III
B) I and III only
C) II and III only
D) III only

Quizplus · Accepted Answer

The intersection of the aggregate demand and long-run aggregate supply curves occurs at the economy's potential output, which is the level of real GDP that the economy can sustain in the long run without generating inflationary pressures.

The Intersection of the Economy's Aggregate Demand and Long-Run Aggregate