1.4 Interaction of aggregate Demand and supply

Question 1

what is the macroeconomic equilibrium?

Answer 1

the point at which aggregate demand equals aggregate supply

Question 2

Explain short run macroeconomic equilibrium, use a graph

Answer 2

at the equilibrium point output in an economy is at Y and price level is at P.

Shifts in AD or AS cause a change to the equilibrium. use a graph to explain this.

Question 3

what are the effects of a change in AD on short run macroeconomic equilibrium?

Answer 3

changes will cause a shift in the AD curve.
when AD increase, assuming no change in AS: price level increases and Real GDP increases.
when AD decreases, assuming no change in AS: price level decreases and real GDP decreases.

Question 4

What are the effects of a change in short un aggregate supply on short run macroeconomic equilibrium?

Answer 4

When AS increases, assuming no change in AD: price level decreases and Real GDP increases

when AS decreases, assuming no change in AD: price level increases and real GDP decreases

Question 5

What are the effects of a change in AD on long run neoclassical equilibrium

Answer 5

When AD increases, assuming no change in LRAS: price level increases and no change in real GDP

When AD decreases, assuming no change in SRAS: price level decreases and no change in real GDP

Question 6

What are the effects of a change in long run AS on neoclassical macroeconomic equilibrium?

Answer 6

When LRAS increases, assuming no change in AD: price level decreases and Real GDP increases

When SRAS decreases, assuming no change in AD: price level increases and Real GDP decreases

Question 7

what are