Macroeconomic equilibrium

• What occurs at macroeconomic equilibrium?

  Aggregate demand equals aggregate supply.
• Why is there a problem in showing macroeconomic equilibrium?

  There are numerous ways of showing aggregate supply.
• What two models are covered in the video regarding macroeconomic equilibrium?

  • Classical model
  • Keynesian model
• What are the two types of equilibrium in classical economics?

  Short run macro equilibrium and long run macro equilibrium.
• What characterizes short run macro equilibrium?

  It occurs where aggregate demand equals short run aggregate supply but does not equal long run aggregate supply.
• How can short run macro equilibrium be illustrated in classical economics?

  • Through diagrams showing AD equals SRS but not equal to LRS.
  • Two diagrams can represent short-term equilibria.
• What does the left-hand diagram indicate in the context of short run equilibrium?

  It shows that where AD equals SRS is not equal to LRS, producing output level y1 instead of yfe.
• What is a deflationary gap?

  It is when the economy is producing below the full employment level of output.
• What happens in the long run according to classical economics?

  The economy will return to the full employment level of output (yfe).
• What is another term for a deflationary gap?

  Recessionary gap or negative output gap.
• What is an inflationary gap?

  It occurs when the economy produces an output level greater than yfe.
• How can an economy produce beyond yfe in the short run?

  By using factors of production unsustainably, such as overworking labor or machinery.
• What does yfe represent?

  The maximum level of output an economy can produce using all factors of production sustainably.
• What is long run equilibrium in classical economics?

  It is when AD equals SRS and also equals LRS, indicating full employment output.
• How is long run equilibrium illustrated in classical economics?

  • Through a diagram where AD equals SRS and LRS.
  • Indicates the economy is at full employment output.
• What does the Keynesian model suggest about macroeconomic equilibrium?

  It is easier to show, as any point where AD cuts the NRS curve can be a long run equilibrium.
• What happens when AD cuts the LRS in the Keynesian model?

  It indicates a long run equilibrium, even if not at yfe.
• What does it mean if AD is on the horizontal part of the LRS in the Keynesian model?

  It can also indicate a long run equilibrium.
• What is the key difference in how classical and Keynesian models show macroeconomic equilibrium?

  • Classical model requires AD to equal both SRS and LRS for long run equilibrium.
  • Keynesian model allows any intersection of AD with the NRS curve to represent equilibrium.
• What will be covered in the next video?

  Shifts of the different curves related to macroeconomic equilibrium.