The short-run aggregate supply curve intersects the long-run aggregate supply curve at:
A) A constant price level
B) The potential level of real output
C) The equilibrium level of aggregate demand
D) The point where real GDP equals nominal GDP

Question

Quizplus · Accepted Answer

The short-run aggregate supply curve shows the relationship between the price level and the quantity of goods and services firms are willing and able to produce in the short run, while the long-run aggregate supply curve shows the relationship between the price level and the potential level of real output in the long run. The intersection point between the two curves represents the equilibrium point in the economy where actual output equals potential output and there are no longer any short-run production constraints. Therefore, the correct answer is B, the potential level of real output.

The Short-Run Aggregate Supply Curve Intersects the Long-Run Aggregate Supply