Question

43)When the aggregate demand curve and the short-run aggregate supply curve intersect,

Select one:

a. The long-run aggregate supply curve must also intersect at the same point.

b. Inflation must be increasing.

c. Structural and frictional unemployment equal zero.

d. The economy is in short-run macroeconomic equilibrium.

Answer 1

Equilibrium means the balance between the supply curve and the demand curve. Equilibrium at both microeconomic and macroeconomic levels is given by the intersection of the supply and the demand curve.

On the macroeconomic level, short-run equilibrium occurs at the intersection of the aggregate demand curve and the short-run aggregate supply curve. At the short-run equilibrium point, price and real output are determined.

Long-run equilibrium occurs at the intersection of the aggregate demand curve and the long-run aggregate supply curve. Structural and frictional unemployment equals zero in the long-run equilibrium at the natural rate of unemployment.

It is not necessary that the long-run aggregate supply curve must also intersect at the same point as short-run equilibrium point.

The answer is (D) The economy is in short-run macroeconomic equilibrium.