3.5 Equilibrium in the Aggregate Demand-Aggregate Supply (AS-AS) Model

Inflationary Gap (Positive Output Gap)

output is high and unemployment is less than NRU

Recessionary Gap (Negative Output Gap0

output low and unemployment is greater than NRU

Economy can only be one of the places at any time

• negative output gap

• full employment

• positive output gap

AD and AS models shows..-

economy at full employment output