The Long-Run Aggregate Supply Curve Is Vertical at $5 Billion

question 5

Multiple Choice

The long-run aggregate supply curve is vertical at $5 billion but the short-run aggregate supply curve intersects the aggregate demand curve at $6 billion.From this,we know that

• A)the economy is operating below full capacity in the short run,and will have to adjust by hiring more workers,thus reducing unemployment.
• B)the price level is too high.The only way long-run equilibrium can be restored is to lower the price level.
• C)adjustments will have to occur so that the long-run aggregate supply equals $6 billion.
• D)adjustments will have to occur so that the short-run aggregate supply intersects the aggregate demand curve at $5 billion.

---

Definitions:

Surplus

An excess of production or supply over demand, often leading to lower prices or an inventory accumulation.

Price Ceiling

A government-imposed limit on how high a price is charged for a product, aimed at preventing prices from reaching levels deemed too high.

Price Floor

A government or group-imposed price control or limit on how low a price can be charged for a product. It is aimed at preventing prices from being too low.

Shortage

refers to a situation where the demand for a product or service exceeds the supply available at a specific price.