Question

Exhibit 9-1 Refer to Exhibit 9-1. If the economy is self-regulating, the price level is:_________.

a) lower in short-run equilibrium than in long-run equilibrium.
b) lower in long-run equilibrium than in short-run equilibrium.
c) higher in long-run equilibrium than in short-run equilibrium.
d) lower when the economy is in a recessionary gap than when it is in long-run equilibrium.
e) a and c

Answer 1

Answer: b) lower in long-run equilibrium than in short-run equilibrium.

Step-by-step explanation:

A self regulating economy will try to move to the long run Equilibrium.

From the graph attached you will notice that the Price Level at the point where the Long Run Curve intersects with the Aggregate Demand curve is lower than the point where the Short Run Supply curve intersects with the same Aggregate Supply.

This means that Prices in the long term at equilibrium will be less than prices in the short term at Equilibrium should the Economy be a self regulating type that will move towards a long term Equilibrium.