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### Course: AP®︎/College Macroeconomics>Unit 3

Lesson 5: Equilibrium in the AD-AS Model

# Short run and long run equilibrium and the business cycle

Let's look at the concept of equilibrium in macroeconomics, using graphs to illustrate aggregate demand and aggregate supply. See how different price levels and outputs affect the equilibrium point, and how the business cycle—characterized by expansions and recessions—reflects these changes.

## Want to join the conversation?

• Seen as real GDP is plotted on the axis of each graph, surely Y[f] can only exist at one point on the right hand graph? Or is it that the graph on the left is a snapshot of time and the graph on the right is across time
• In reality, the Yf on the left-hand side graph (the AD-AS model) is constantly shifting to the right, which is why there is an upward trend to the graph on the right (the business cycle model).

You can also think about it this way... if there is no economic growth, then there is no upward trend in the business cycle model. That upward sloping straight line is just a horizontal straight line. In this case Yf is a fixed amount of output and actual output just deviates around that, creating the business cycle.
• is it possible to meet the equilibrium point for a long period of time
• Sure, it is theoretically possible. But I would be hard pressed to think of an example of this happening.
• Curious to know whether this is the keynsian method of the AD/AS, in my models SRAS was a not a straight-line but started off horizontal [straight] and curved at the equalibrium point of the LRAS?
• Keynsians don't really differentiate between SR and LR.
There's no reason SRAS would bend at LRAS.
• I have a question. Is equilibrium always at an optimal level of output? If so why?
• No, it's not, particularly in the Keynsian model (which fits the real world). In the Keynesian model, the economy can be at equilibrium at any level of employment
• I think that Yf should be equal to Y1，and Yf is the natural AD, which means natural unemployment rate is considered.

Firstly,if Yf is the maximum of AS, right on the PPC, then the SRAS could not go beyoung the LRAS.Hence it could not be.As a result, Yf must be the natural AD.

Secondly, it is impossible that Yf does not equal to Y1. Because in the long term, the AD and AS must keep that balance right on the equilibrium piont, otherwise it cannot considered as a balance.
(1 vote)
• Does macroeconomic equilibrium in the short run always occur at full-employment GDP?