Question

how is the equilibrium price and output level of an economy is determined

Answer 1

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In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of the aggregate demand and the short-run aggregate supply curves. In the short run, output can be either below or above potential output.

Answer 2

in the short run the equilibrium price level and the equilibrium level of total output or determined by the intersection of aggregate demand and the short run aggregate supply curves in the short run output can be either below or above potential output