Lecture 13 - Short Run Macroeconomic Equilibrium

What occurs when the quantity of aggregate supply equals the quantity of aggregate demand in the short run?

Short run macroeconomic equilibrium.

What does AD stand for in macroeconomics?

Aggregate Demand.

What components make up Aggregate Demand?

Consumption (C), Investment (I), Government Spending (G), and Net Exports (X-M).

What does the equation AD = C + I + G + (X-M) represent?

The components of Aggregate Demand.

What does SRAS represent in macroeconomics?

Short Run Aggregate Supply.

What is indicated when AD exceeds SRAS?

Upward pressure on the price level, leading firms to increase production.

What happens when SRAS exceeds AD?

Downward pressure on the price level, leading firms to reduce production.

What is Full Employment Equilibrium?

When equilibrium real GDP equals potential output (Y_P), indicating the economy is at natural unemployment.

What is a Recessionary Gap?

When equilibrium real GDP is less than potential output (Y_P), indicating underutilization of resources and high unemployment.

What is an Inflationary Gap?

When equilibrium real GDP exceeds potential output (Y_P), indicating an overheating economy with rising price levels.

What typically calls for expansionary policies in macroeconomics?

A recessionary gap where the economy operates below full capacity.

What usually prompts contractionary policies in an economy?

An inflationary gap where the economy operates above sustainable capacity.