At Long-Run Equilibrium in the Dynamic Model of Aggregate Demand

question 69

Multiple Choice

At long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, which variables will equal the central bank's target rate of inflation?

• A) the current inflation rate, but not the expected inflation rate
• B) the expected inflation rate, but not the current inflation rate
• C) both the current and expected rates of inflation
• D) neither the current nor the expected rates of inflation

---

Definitions:

Equilibrium Level

The state in which market supply and demand balance each other, and as a result, prices become stable.

Structural Unemployment

A situation where there is a mismatch between the skills workers have and the skills needed by employers due to technological changes or other factors.

Labor Unions

Organizations formed by workers from related fields that work for the common interest of its members in terms of wages, working hours, working conditions, and other employment matters.

Natural Rate

The unemployment rate at which the economy operates at full capacity, with only frictional and structural unemployment.