To move the economy to potential output, the government should reduce its spending by an amount equal to aggregate price level.
When the total amount of output required and supplied equals one another, an economy is in short-run equilibrium. When total output and total demand are equal, this is referred to as short-run equilibrium. When prices respond to market changes and the economy is operating at its maximum potential, long-run equilibrium has been reached. Solution: Due to the fact that market supply and demand are equal, the short-run equilibrium price is determined. Since Qd(p) = 110 p and Qs(p) = 10 p, or 110 p = 10 p, it follows that 11p = 110 and p = 10. So, Q = 100 is the market equilibrium quantity.
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