Within the framework of the AD/AS model, if a long-run equilibrium is present in the goods and services market,
A) decision makers will have accurately forecast the current price level when they arrived at resource price and loanable funds agreements.
B) the profit rates of the firms will generally exceed the competitive level.
C) the actual rate of unemployment will fall below the natural rate of unemployment.
D) the current rate of output will be sustainable in the future.
E) both a and d are correct.

Question

Quizplus · Accepted Answer

If a long-run equilibrium is present in the goods and services market, it means that output is at its potential level and the economy is operating at full employment without any inflationary pressures. This implies that decision makers had accurately forecasted the current price level when they arrived at resource price and loanable funds agreements, hence option A is correct. Moreover, in the long-run equilibrium, the rate of output will be sustainable in the future, implying that option D is also correct. Therefore, both options A and D are correct, hence the answer is E. Option B is incorrect because profit rates in the long-run equilibrium will be at the competitive level. Option C is also incorrect because in the long-run equilibrium, the actual rate of unemployment will be equal to the natural rate of unemployment.

Within the Framework of the AD/AS Model, If a Long-Run