Macroeconomic equilibrium Flashcards

1
Q

Equilibrium in the Short Run

A

Where AD and AS curves meet
A rise in AD will shift the curve to the right, vice versa
A rise in AS will shift the curve down, vice versa

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Equilibrium in the Long Run

A

Where LRAS curve meets AD curve

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Effect of change in AD on Classical LRAS

A

A shift in AD affects price level, but not output, as economy is already operating at max employment, cannot produce any further sustainably
Shift right in AD –> meets SRAS outside LRAS –> DISEQUILIBRIUM –> economy operating over full employment, unsustainably, meaning SRAS will decrease, as firms find it harder to find labour, land, and raw materials, so SRAS shifts up –> now back to equilibrium, AD=SRAS=LRAS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Effect of change in AD on Keynesian LRAS

A

Deep depression period: Increase in AD - increases output, but doesnt affect price level, as now new resources are brought in, the unused resources start to get used
At full employment: Increase in AD - increases price level, doesnt affect output, as econ is at max potential
Between two periods (bendy area): Increase in AD will increase both price level and output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Shift in LRAS and EQ in Classical LRAS

A

Rise is LRAS - productive potential of economy has increased - incentive to work/advancements in technology
LRAS shifts to right, meets AD at a lower price level, EQ prices FALL, OUTPUT INCREASES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Shift in LRAS and EQ in Keynesian LRAS

A

Rise in LRAS - productive potential of economy has increased - incentive to work/advancements in technology
LRAS curve shifts to right:
No change in deep depression period
Between FE and DD - Increase in output and fall in prices at EQ
At FE - Increase in output and fall in prices at EQ

How well did you know this?
1
Not at all
2
3
4
5
Perfectly