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An economy in long-run equilibrium has which of the following characteristics?

Multiple select question.

A vertical aggregate demand curve

A positive GDP gap

Neither a negative nor a positive GDP gap

Full-employment output

1 answer

An economy in long-run equilibrium has the following characteristics:

  • Neither a negative nor a positive GDP gap: In long-run equilibrium, the actual output is equal to the potential output, which means there is no gap between actual and potential GDP.

  • Full-employment output: In long-run equilibrium, the economy operates at full employment, meaning all resources are utilized efficiently, and unemployment is at the natural rate.

The other options are not characteristics of long-run equilibrium:

  • A vertical aggregate demand curve: The aggregate demand curve is generally downward sloping, not vertical. A vertical aggregate supply curve represents a situation where output is fixed in the long run (e.g., the long-run aggregate supply curve).

  • A positive GDP gap: A positive GDP gap indicates that actual output exceeds potential output, which occurs in an economy that is operating above full capacity. This is not characteristic of long-run equilibrium.

Therefore, the correct characteristics are:

  • Neither a negative nor a positive GDP gap
  • Full-employment output