The long-run aggregate supply curve is vertical at $5 billion but the short-run aggregate supply curve intersects the aggregate demand curve at $6 billion.From this,we know that
A)the economy is operating below full capacity in the short run,and will have to adjust by hiring more workers,thus reducing unemployment.
B)the price level is too high.The only way long-run equilibrium can be restored is to lower the price level.
C)adjustments will have to occur so that the long-run aggregate supply equals $6 billion.
D)adjustments will have to occur so that the short-run aggregate supply intersects the aggregate demand curve at $5 billion.

Question

Quizplus · Accepted Answer

The long-run aggregate supply curve being vertical at $5 billion indicates the full capacity output of the economy. If the short-run aggregate supply intersects the aggregate demand curve at $6 billion, it means the economy is currently producing above its full capacity. Adjustments will naturally occur to bring the economy back to its full capacity level of $5 billion, aligning the short-run aggregate supply with the long-run aggregate supply.

The Long-Run Aggregate Supply Curve Is Vertical at $5 Billion