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Macroeconomic equilibrium


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Short run equilibrium
Where Short Run Aggregate Supply meets Aggregate Demand (SRAS)
Long-run equilibrium
Where aggregate demand is equal to Long Run Aggregate Supply (LRAS)
Inflationary gap
Real Output greater than potential output, increase in average price level
Deflationary gap
Real Output lesser than potential output, decrease in average price level
Classical perspective of LRAS
The long run aggregate supply (LRAS) will always have the same output at any price level
Classical reasoning for LRAS
As price increase, wages increase, and there is not real gain
Keynesian perspective of LRAS
Wages are sticky (unchanging) downwards, and prices cannot get below a certain point.
Keynesian reasoning for LRAS
When country is in deflation, output can be increased without increasing the price
Level 11