Chapter 16 - Macroeconomic Equilibrium

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10 Terms

1
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what does short run equilibrium look like?

AD = AS so there’s no up/down pressure on prices

<p>AD = AS so there’s no up/down pressure on prices</p>
2
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what does long run equilibrium look like?

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3
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a shift in ad in long run equilibrium will

only affect price because the economy is already at Yfe and has no more to give

4
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Deflationary output gap

  • Y1 < Yfe

  • leads to unemployment

  • short-run equilibrium is reached below Yfe

<ul><li><p>Y1 &lt; Yfe</p></li><li><p>leads to unemployment</p></li><li><p>short-run equilibrium is reached below Yfe</p></li></ul><p></p>
5
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Inflationary Output Gap

  • caused by DPI & rising govt spending

  • Y1 > Yfe

<ul><li><p>caused by DPI &amp; rising govt spending</p></li><li><p>Y1 &gt; Yfe </p></li></ul><p></p>
6
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Deflationary gap with a shift in SRAS

  • AD shifts left for whatever reason

  • supply shifts right because of lower CoP

  • short run eq established

  • return to Yfe at a lower price

<ul><li><p>AD shifts left for whatever reason</p></li><li><p>supply shifts right because of lower CoP</p></li><li><p>short run eq established</p></li><li><p>return to Yfe at a lower price</p></li></ul><p></p>
7
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Inflationary gap with a shift in SRAS

  • AD shifts right for whatever reason

  • SRAS shifts left as CoP for firms rises

  • the rise in output provides no real gain so the economy reverts to Yfe at P3

<ul><li><p>AD shifts right for whatever reason</p></li><li><p>SRAS shifts left as CoP for firms rises</p></li><li><p>the rise in output provides no real gain so the economy reverts to Yfe at P3</p></li></ul><p></p>
8
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Keynesian Deflationary Output Gap

Keynesians believe long-run eq can be achieved well below Yfe because of spare capacity

<p>Keynesians believe long-run eq can be achieved well below Yfe because of spare capacity</p>
9
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A keynesian deflationary output gap is the same as

a PPC with a point inside the confines of the curve

10
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True or False - Keynesians believe AD can shift without a raise in price

True - producers can simply make use of unused FoP without any cost to themselves