Macroeconomic equilibrium

If AD or LRAS shifts then

there will be a new equilibrium GDP.

A trade-off occurs when

one thing is given up in order to achieve another.

Trade off:
By increasing AD economic growth and lower unemployment are achieved.
However

This has been at the cost of demand-pull inflation.

The multiplier

the amount by which an initial change in AD must be multiplied to find an eventual change in national income

The multiplier process

the mechanism by which a change in AD eventually leads to an even greater change in national income

Why doesn't national income go on rising for ever?

withdrawals from the circular flow of income

Withdrawals represent money that leaks out of the circular flow of income due to:

Saving
Taxation
Imports

Economic cycle

Fluctuations in the level of GDP over time

Recessions and Slumps are characterised by

Rising unemployment
low and falling inflation
falling or negative economic growth

Recoveries and Booms are characterised by

Low and falling unemployment,
high and rising demand-pull inflation
high and rising economic growth

Aggregate demand may fall for a number of reasons:

A recession.
A demand-side shock
Government policies

The government can use the multiplier to determine their

economic policy.

Macroeconomic equilibrium occurs at the level of real GDP where

AD = AS

At equilibrium planned spending is equal to

planned production