AP Macroeconomics Question 424: Answer and Explanation
Use your browser's back button to return to your test results.
The figure above shows aggregate demand (AD) and supply (AS) for the economy. Assuming that aggregate demand remains constant, which of the following best predicts the short-run price level, the long-run price level, and the long-run level of output?
SHORT-RUN PRICE LEVEL LONG-RUN PRICE LEVEL LONG-RUN OUTPUT
- A. P2 P1 Q4
- B. P2 P2 Q1
- C. P2 P3 Q1
- D. P1 P2 Q3
- E. P3 P2 Q2
Correct Answer: C
C-Short-run equilibrium is where short-run AS intersects AD, in this case, above full employment. In the long run, wages increase, shifting SRAS leftward until settling at full employment Q1 and higher price P3.