Equilibrium Levels Of Real National Output

Question 1

Equilibrium real national output

Answer 1

-The economy reaches a state of equilibrium when the rate of withdrawals=the rate of injections. This is equivalent to the point where AD=AS.

Question 2

The effects of shifts in AD and AS on the price level and real national output

Answer 2

-At a price above equilibrium, there will be excess supply. At a price below equilibrium, there will be excess aggregate demand, in the short run.

Question 3

Shift in AS

Answer 3

-If the economy becomes more productive, or if there is an increase in efficiency, supply will shift to the right. This lowers the average price level (PE to P1) and increases national output (Ye to Y1). The economy is no longer producing at long run equilibrium, as they are producing beyond the LRAS.

-If AS shifts inwards, price increases and national output decreases.

Question 4

Shift in AD

Answer 4

-If firms have less confidence or there is a recession, AD might shift inwards. This caused the price level to fall from Pe to P1, and national output to fall from Ye to Y1

-If AD increases, the price level and level of national output both increase.