5 Steps to a 5 AP Macroeconomics 2019

112 ❯ Step 4. Review the Knowledge You Need to Score High

•    When   the LRAS    curve   shifts  to   the    right,  this    indicates   economic    growth, just    as   an 

outward shift in the production possibility curve does.

9.3 Macroeconomic Equilibrium

Main Topics: Equilibrium Real GDP and Price Level, Recessionary and Inflationary Gaps,

Shifting AD, The Multiplier Again, Shifting SRAS, Classical Adjustment from Short-Run to

Long-Run Equilibrium

We use supply and demand models to predict changes in the prices and quantities of microeco­

nomic goods and services. Now that we have built a model of aggregate demand and aggregate

supply, we use similar analysis to predict changes in real GDP and the aggregate price level.

Equilibrium Real GDP and Price Level

When the quantity of real output demanded is equal to the quantity of real output sup­

plied, the macroeconomy is said to be in equilibrium. Figure 9.6 illustrates macroeconomic

SRAS 1990

Real GDP

Price

Level

1990

GDPf

LRAS 1990

2015

GDPf

LRAS 2015

SRAS 2015

Figure 9.5

SRAS

LRAS

Real GDP

Price

Level

GDPf

PLf

AD

Figure 9.6

KEY IDEA

Example:

Since the 1990s, the U.S. economy has seen dramatic increases in technology and

investment in the capital stock. This period produced a significant increase in

the real GDP at full employment, as shown in Figure 9.5.

TIP