AP Macroeconomics Flashcards: Equilibrium in the Aggregate Demand-Aggregate Supply (AD-AS) Model
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What is a positive output gap?
A positive, or inflationary, output gap occurs when the short-run equilibrium output is above the full-employment level of output.
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What is a positive output gap?
A positive, or inflationary, output gap occurs when the short-run equilibrium output is above the full-employment level of output.
If the current equilibrium output is below the full-employment level, what kind of output gap does the economy have?
The economy has a negative, or recessionary, output gap.
What does it mean for the economy when the short-run equilibrium is also the long-run equilibrium?
It means the economy is operating at its full-employment level of real output, with no recessionary or inflationary gap.
Graphically, where must the intersection of the AD and SRAS curves occur for the economy to be in long-run equilibrium?
For the economy to be in long-run equilibrium, the AD and SRAS curves must intersect on the long-run aggregate supply (LRAS) curve.
What is a negative output gap?
A negative, or recessionary, output gap occurs when the short-run equilibrium output is below the full-employment level of output.
What is the relationship between the short-run equilibrium output and the full-employment level of output?
The short-run equilibrium output can be at, above, or below the full-employment level of output.
What is long-run equilibrium in the Aggregate Demand-Aggregate Supply model?
Long-run equilibrium occurs when the AD and SRAS curves intersect on the Long-Run Aggregate Supply (LRAS) curve, meaning the economy is at its full-employment level of real output.
If the AD and SRAS curves intersect at a real output level greater than the long-run potential output, what is this situation called?
This situation creates a positive, or inflationary, output gap.
What is short-run equilibrium in the Aggregate Demand-Aggregate Supply model?
Short-run equilibrium occurs when the aggregate quantity of output demanded equals the aggregate quantity of output supplied, found at the intersection of the AD and SRAS curves.
What condition regarding aggregate demand and aggregate supply determines the short-run equilibrium price and output levels?
The short-run equilibrium price and output levels are determined where the aggregate quantity of output demanded and the aggregate quantity of output supplied are equal.