Macro - Equilibrium Level Of Real National Output

Question 1

Equilibrium real national output

Answer 1

This occurs at point where AS is equal to AD however due to the fact that there are different economic models of AS/AD there are also different ways of showing macroeconomic equilibrium.

Question 2

The use of AD/AS diagrams to show how shifts in AD or AS cause changes in the equilibrium price level and real national output

Answer 2

An increase in AD (AD1 to AD2) causes an increase in real GDP (Y1-YFE) moving the economy to a point of full employment (YFE). The bigger the increase in AD, the closer the shift will take the economy to the point of full employment. This increase in AD causes the price level to increase from P1 to P2 as a result of the reduction in spare capacity putting more pressure on existing factors of production.