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