In the long run in the AD/AS macro model we can say that
A)both real GDP and the price level are determined by Y*.
B)long- run real GDP is determined by Y* and the long- run price level by the AD curve.
C)long- run real GDP is determined by aggregate demand and the price level is determined solely by the AS curve.
D)both real GDP and the price level are determined by aggregate demand.
E)real GDP is determined by aggregate demand and the price level by Y*.

Question

Quizplus · Accepted Answer

In the long run, the economy settles at the potential output level determined by the aggregate supply curve, represented by Y*. The price level in the long run is also determined by the intersection of aggregate demand and aggregate supply, which is represented by the AD curve. Therefore, long-run real GDP is determined by Y*, and the long-run price level is determined by the AD curve.

In the Long Run in the AD/AS Macro Model We