Question 1

What are the two types of equilibrium when referring to the aggregate economy?

Accepted Answer

Short-run aggregate equilibrium (quantity of aggregate demanded is equal to the quantity of aggregate supply)

Long-run equilibrium (the current output is also equal to potential output)

Question 2

What is a recessionary gap?

Accepted Answer

When output is low, and unemployment is greater than NRU

("busts")

Question 3

What is an inflationary gap?

Accepted Answer

When output is high, and unemployment is less than NRU.

("booms")

Question 4

What are the three places that an economy can be at?

Accepted Answer

Full employment: Unemployment is at the NRU (frictional + structural)

Recessionary gap (negative output gap): Output low and unemployment is greater than NRU

Inflationary gap (positive output gap): Output is high and unemployment is less than NRU

Question 5

When does long-run equilibrium occur?

Accepted Answer

When the AD and SRAS curves intersect on the LRAS

(full employment)

Question 6

When does short-run equilibrium occur?

Accepted Answer

When the aggregate quantity of output demanded and the aggregate quantity of output supplied are equal

3.5 Equilibrium in the AD-AS Model, AP Macroeconomics Flashcards