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Module 19

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Macroeconomic Equilibrium - Fill-in-the-Blank

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Fill in the Blanks

Module 19Online version

Macroeconomic Equilibrium - Fill-in-the-Blank

by Zachary Foust
1

together fluctuations

To understand the behavior of the economy , economists put the aggregate supply curve and the aggregate demand curve .

The AD - AS model is the basic model that economists use to understand economic .

2

level output price intersect shifts

The point at which the AD and SRAS curves is the short - run macroeconomic equilibrium .

The aggregate at short - run macroeconomic equilibrium is the short - run equilibrium aggregate price level .

The level of aggregate at short - run macroeconomic equilibrium is the short - run equilibrium aggregate output .

The short - run equilibrium aggregate output and the short - run equilibrium aggregate price level can change because of of either the AD curve or the SRAS curve .

3

positive shifts shifts negative positive negative combination

An event that the aggregate demand curve is known as a demand shock .

A demand shock shifts the aggregate demand curve to the left , leading to lower aggregate output and a lower aggegate price level .

A demand shock shifts the aggregate demand curve to the right , leading to higher aggregate output and a higher aggregate price level .

An event that the short - run aggregate supply curve is known as a supply shock .

A supply shock shifts the short - run aggregate supply curve to the left , leading to lower aggregate output and a higher aggregate price level .

The of inflation and falling aggregate output is known as stagflation .

A supply shock shifts the short - run aggregate supply curve to the right , leading to higher aggregate output and a lower aggregate price level .

4

long high long right short potential long on above difference left below low Output long

At the intersection of all three curves ( SRAS , LRAS , and AD ) short - run equilibrium aggregate output is equal to output .

When the point of short - run macroeconomic equilibrium is the long - run aggregate supply curve , the economy is experiencing a situation known as long - run macroeconomic equilibrium .

When aggregate output is potential output , the economy faces a recessionary gap .

A recessionary gap inflicts a great deal of pain because it corresponds to unemployment .

In the face of high unemployment , nominal wages eventually fall , ultimately leading the short - run aggregate supply curve to shift to the .

The economy is self - correcting in the - run .

When aggregate output is potential output , the economy faces an inflationary gap .

Unemployment is in order to produce this higher level of aggregate output .

In the face of low unemployment , nominal wages will rise , ultimately lead the short - run aggregate supply curve to shift to the .

Again , the economy is self - correcting in the - run .

The output gap is the between actual aggregate output and potential output .

gap = actual aggregate output - potential output

In the - run , the economy is self - correcting .

Shocks to aggregate demand affect aggregate output in the - run but not in the - run .

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