Graphically,the intersection of the aggregate demand (ADI)curve and the inflation adjustment (IA)line determines
A) potential output.
B) the central bank's policy reaction function.
C) autonomous spending.
D) short-run equilibrium.
E) long-run equilibrium.

Question

Quizplus · Accepted Answer

The intersection of the aggregate demand (ADI) curve and the inflation adjustment (IA) line determines the short-run equilibrium, which is the point where the quantity of output demanded equals the quantity of output supplied. At this point, there is no tendency for output or prices to change because there is no excess demand or supply in the economy. Therefore, D is the best choice. A, B, C, and E do not accurately describe the intersection of the ADI curve and the IA line.

Graphically,the Intersection of the Aggregate Demand (ADI)curve and the Inflation