Which of the following descriptions best models an economy in long-run equilibrium?

Question

A. All three curves—AD, SRAS, and LRAS—intersect at the same point.

B. The AD and SRAS curves intersect to the left of the LRAS curve.

C. The AD and SRAS curves intersect to the right of the LRAS curve.

D. Only the AD and LRAS curve intersect.

Answer 1

The correct description that best models an economy in long-run equilibrium is:

A. All three curves—AD, SRAS, and LRAS—intersect at the same point.

In long-run equilibrium, the aggregate demand (AD) curve, short-run aggregate supply (SRAS) curve, and long-run aggregate supply (LRAS) curve all intersect at the same point, which indicates that the economy is operating at full employment and producing at its potential output.