Which of the following is necessarily true when an economy is in long-run equilibrium?
A) Prices will be constant (that is, inflation will be zero).
B) The actual output will be less than the full-employment (or potential) output.
C) The actual rate of unemployment equals the natural rate of unemployment.
D) The output of the economy will be greater than the full-employment output.

Question

Quizplus · Accepted Answer

In long-run equilibrium, the economy has reached its potential output and there is no cyclical unemployment. Therefore, the actual rate of unemployment equals the natural rate of unemployment. Prices may not necessarily be constant (option A), and the output of the economy may not necessarily be greater than the full-employment output (option D). Option B is incorrect because full-employment output has been attained in long-run equilibrium.

Which of the Following Is Necessarily True When an Economy