Equilibrium Levels of Real National Output (2.4)

What is the equilibrium real national output?

The level of GDP where AD is equal to AS

What occurs at the equilibrium level of real national output?

There is no tendency for the economy to change its output level, all produced goods and services are sold, and there is neither excess supply or excess demand

3 Key Characteristics of the equilibrium real national output 

1. Price stability

2. Full Employment

3. Sustainable Output

What does the intersection between the AD and AS curves on the AD/AS diagram show?

The equilibrium price level and real national output

2 Things that an increase in AD would lead to?

1. A higher price level

2. An increase in real national output

2 Things that a decrease in AD would lead to?

1. Lower price level (deflation)

2. A decrease in real national output

2 Things that an increase in AS would lead to?

1. A lower price level

2. An increase in real national output

2 Things that an decrease in AS would lead to?

1. A higher price level

2. A decrease in real national output

Example of an increase in AD?

During the COVID-19 pandemic, various governments increased spending and provided stimulus checks, shifting AD to the right.

Example of a decrease in AS?

The 1970s oil crisis saw a sharp increase in oil prices, shifting the AS curve to the left, causing stagflation

What is staflation?

A higher prices but a lower output