Representing Macroeconomic Equilibrium with AD/AS Diagrams

This video tutorial explores how to represent macroeconomic equilibrium using AD/AS diagrams, focusing on both short run and long run perspectives. It covers key terminology, the role of price level and real output, and the significance of aggregate demand (AD), short run aggregate supply (SRAS), and long run aggregate supply (LRAS) curves. The tutorial explains how to identify initial equilibrium, output gaps, and the impact of curve shifts on economic variables like inflation and employment. It also highlights the relationship between real output and employment, emphasizing the positive link between them.

What are the key variables measured on the axes of the AD/AS diagram?

Explain the significance of the full employment level of output (YFE) in macroeconomic analysis.

What are the potential causes of curve shifts in the AD/AS model?

Describe the three different positions an economy can be in the short run regarding the full employment level of output.

What happens to the economy when there is a negative output gap?

Explain the concept of macroeconomic equilibrium in the context of the AD/AS diagram.

How does the economy transition from short run to long run equilibrium?

How do shifts in the AD and SRAS curves affect the macroeconomic equilibrium?

Discuss the implications of an inward shift of the AD curve on the price level.

What is the relationship between real output and employment in an economy?