Aggregate Demand and Aggregate Supply - The AD-AS Model - Long Run Macroeconomic Equilibrium
7 important questions on Aggregate Demand and Aggregate Supply - The AD-AS Model - Long Run Macroeconomic Equilibrium
What do we call I when the point of short run equilibrium AD and short run equilibrium AS is on the long run aggregate supply curve? And describe what it is?
- We call it the Long run macroeconomic equilibrium
- it is the intersection of all three curves the LRAS, SRAS, and, AD
- short run equilibrium is equal to potential output
What happens when there is a sudden worsening of business, and bad consumer expectations? What gap do we call this event? And what does it mean?
- The aggregate demand falls, and shifts leftward
- this leads to a lower equilibrium aggregate price level at and a lower equilibrium aggregate price level
- so it settles at the short run equilibrium E2
- but this point is below output so the economy is facing a recessionary gap
- recessionary gap occurs when there is high unemployment
What happens during a recessionary gap? What happens to
- The economy face high unemployment,
- nominal wages fall
- producers then increase output, because of reduced costs
- leading to a shift of the SRAS curve to shift to the right until the economy get back to E3 or the long run equilibrium
- Higher grades + faster learning
- Never study anything twice
- 100% sure, 100% understanding
For my 1st exam I got a C. Then, I started looking for ways to learn better and I came across Study Smart. Since then I have scored a A+, A, A- and another A. I highly recommend it to everyone who wants to hear it. I am so happy with it!!
I was struggling to finish all my first-year subjects for 3 years. Then I discovered Study Smart, which helped me to finish all of them within 3 months.
Because of StudySmart, things are going well in many ways. Before, I always had study stress and no time for anything. Now I feel calm and confident (because of the program). I used to score a B, now I usually score an A or A+.
Hey Chris, I really want to thank you very much for developing the platform, I usually got around C for my exams, now I scored an A+, an A and a A- !!
Since using Study Smart, my average has increased significantly. I even completed a statistics course with a A+ while I'm bad at statistics. I took on extra courses this year, because of Study Smart. Thanks so much!
Ever since I started studying with StudySmart I passed all my exams !!! No more re-sits!! At first, I was happy with a pass and now I only get good grades. Many thanks!
I aced all the courses I studied with Study Smart. For law, I first scored a D, and now an A! I’m 100% sure that I’ll pass all the courses I study with Study Smart.
I always thought I studied well. My grades were fine. I could never have imagined that applying these study skills would have such a huge and direct impact on my grades, my speed and the pleasure I have in learning.
For the first time, I finally feel totally confident about the way I learn. I have the perfect overview and make great progress in terms of speed and the grades I get. Thanks, Chris!
I immediately started to enjoy learning again, and my grades soared. All of a sudden, everything went better. I highly recommend Study Smart to all students..
Being able to create my materials online made the process of studying so much smoother and quicker. I no longer have to spend a huge amount of my time on creating my summaries.
At first, my notes were a mess. Now I use Study Smart to take my notes in a perfectly structured way. It helps me to save a lot of time and do other things I enjoy.
Students that study with Study Smart get better grades. The system applies all the learning methods in such a way that both well-performing students and students who struggle perform much better.
Hi Chris, I would like to thank you very much. Last year I scored C on a course, and this year I got an A+ thanks to your method! Thank you very much!
The largest effect is that my child is more enthusiastic about school! Every parent wants their children to be happy at school, Study Smart made it happen.
In high school, I failed several exams, and that has really changed now. I actually needed this tool very much back then. Since I started studying with StudySmart, I haven't had any D's. My average score is now an A and those are results I would have never had in the past
With my old method, I passed only 3 out of 8 courses. Since I started taking my notes digitally in Study Smart, I have passed all my courses on the first try. For me, StudySmart takes away the stress of wondering if I will pass or not.
Thanks to StudySmart, I passed all my exams, and with better grades than before! On top of that, I have mastered a very good study method now, which I am confident will help me earn my degree.
What happens when there is a sudden improvement of business, and good consumer expectations? What gap do we call this event? And what does it mean?
- There will be an increase in aggregate demand
- initially we have the short run aggregate supply curve that is at the LR macroeconomic equilibrium
- now the AD rises and the AD curve shifts to the right
- leading to a higher aggregate price level and a higher aggregate output level
- the new short run aggregate output is now above the potential output
- now unemployment is low and the price level is high, so there is an inflationary Gap
What happens after an inflationary gap?
- As there is low unemployment, nominal wages will rise as will other sticky prices.
- the inflationary gap causes the short run aggregate supply curve to shift gradually to the left as producers reduce output, because of higher nominal wages
- bringing the economy through leftward shifts of the SRAS curve to a new position where AD= AS=LRAS where all three intersect at E3
- at E3 the economy is back in the Long run macroeconomic equilibrium
What is the tool used to determine how the economy responds recessionary and inflationary gaps. And how do we describe it? And what is the formula? Where does this tool always tend to go back to?
the output Gao is the difference between actual aggregate output and potential output
(actual aggregate output - potential aggregate output)/ potential output)*100
the output gap always tends to go back towards zero
What do we call the process in the long run that makes the output gap always zero? So what can we say about output in the short run and in the long run?
- We say the economy is self correcting
- because shocks tp the aggregate demand affects the aggregate output in the short run but not in the long run
Try our study magic for free
a PDF, study it super fast
- No sign up, email or credit card needed!
- AI makes unlimited flashcards
- Get unlimited quizzes and tests
- Ask AI anything
- No sign up, email or credit card needed!
- Have and keep perfect overview
- Make flashcards, notes and mind maps
- Review, test and score!
The question on the page originate from the summary of the following study material:
- A unique study and practice tool
- Never study anything twice again
- Get the grades you hope for
- 100% sure, 100% understanding
