In the aggregate demand-aggregate supply model, short-run equilibrium occurs at the combination of output and prices where:
A) aggregate demand equals long-run aggregate supply.
B) aggregate demand equals short-run aggregate supply.
C) aggregate demand equals short-run and long-run aggregate supply.
D) short-run aggregate supply equals long-run aggregate supply.

Question

Quizplus · Accepted Answer

Short-run equilibrium occurs when aggregate demand equals short-run aggregate supply. In the short run, prices are fixed, so changes in aggregate demand lead to changes in output. Long-run equilibrium occurs when aggregate demand equals both short-run and long-run aggregate supply, which allows prices to adjust fully to changes in demand.

In the Aggregate Demand-Aggregate Supply Model, Short-Run Equilibrium Occurs at the Combination