At the intersection of the aggregate supply and aggregate demand curves, the economy is in:
A) short-run equilibrium but not necessarily at potential output.
B) at potential output but not necessarily short-run equilibrium.
C) in short-run equilibrium at potential output.
D) neither short-run equilibrium nor at potential output.

Question

Quizplus · Accepted Answer

The intersection of the aggregate supply and aggregate demand curves indicates the economy's short-run equilibrium, but it does not guarantee that the economy is at its potential output. Potential output is the level of output the economy could achieve if it were operating at full employment, which may not always coincide with the short-run equilibrium.

At the Intersection of the Aggregate Supply and Aggregate Demand