Identify the correct statement.
A)Aggregate demand alone determines equilibrium price and output.
B)Aggregate supply alone determines equilibrium price and output.
C)Aggregate demand and aggregate supply determine equilibrium price and output.
D)Aggregate demand shows the positive relationship between price level and real GDP.
E)Aggregate supply shows the negative relationship between price level and real GDP

Question

Quizplus · Accepted Answer

Equilibrium price and output are determined by the intersection of aggregate demand and aggregate supply curves. Therefore, both aggregate demand and aggregate supply are necessary in determining the equilibrium. Moreover, options D and E are partly correct as aggregate demand shows a negative relationship between the price level and quantity demanded while aggregate supply shows a positive relationship between the price level and quantity supplied.

Identify the Correct Statement