AP Macroeconomics Question 17: Answer and Explanation

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Question: 17


On the graph of the aggregate supply and demand model above a recessionary gap exists, and the economy is in

  • A. neither short-run nor long-run equilibrium
  • B. long-run, but not short-run, equilibrium
  • C. short-run equilibrium
  • D. both long- and short-run equilibrium
  • E. long-run, but not short-run, equilibrium

Correct Answer: C


C The equilibrium GDP is where the short-term aggregate supply (SAS) curve and the aggregate demand (AD) curve intersect. The GDP at this level is lower than the GDP of where AD and LAS intersect. The economy is, therefore, not at long-run equilibrium, so eliminate answers (B), (D) and (E). As the economy is in short-run equilibrium, the answer is (C).