If the economy is simultaneously in long-run and short-run equilibrium, which of the following is true?
A) Aggregate quantity supplied is greater than potential output.
B) Aggregate quantity demanded is less than potential output.
C) Aggregate quantity demanded is equal to potential output.
D) The aggregate demand curve is horizontal at the potential output level.

Question

Quizplus · Accepted Answer

If the economy is in long-run and short-run equilibrium, it means that the economy is producing at its potential output (the output level at which there is full employment of resources) and the price level is stable (no inflation or deflation). In this situation, aggregate quantity demanded is equal to potential output because firms are willing to produce the same amount that consumers are willing to purchase at the current price level.

If the Economy Is Simultaneously in Long-Run and Short-Run Equilibrium