1.4a Short-run macroeconomic equilibrium

Macroeconomic equilibrium?

when real output produced by firms (SRAS) is exactly equal to the total demand for g+s (AD) —> so at Y1 there is no upward or downward pressure on the price level (PL1)

ie. in theory at output Y1, there is no inflationary or deflationary pressure + (with no changes to the AD curve or SRAS curve) the economy rests at this equilibrium (PL1;Y1)

- can use this SRAS-AD model to theoretically predict the consequences of diff shifts in the curves, because the equilibrium will change…

eg: Using an aggregate supply and aggregate demand diagram, analyse the effects of an increase in consumer confidence in an economy.

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