Equilibrium output in the short run, as given by spending balance, can be above or below potential GDP.

Question

Quizplus · Accepted Answer

Equilibrium output in the short run, as determined by the intersection of aggregate demand and short-run aggregate supply, can be above or below potential GDP. This is because there may be temporary factors that affect aggregate demand or aggregate supply, causing output to deviate from its long-term potential level.

Equilibrium Output in the Short Run, as Given by Spending