Download Goal 1: Define and draw model of macroeconomic equilibrium

April 16, 2012 Macroeconomic
Equilibrium
Goal 1: Define and draw model of macroeconomic
equilibrium.
Macroeconomic Equilibrium-Is the point where the
quantity of aggregate demand equals the quantity of
aggregate supply.
Qf = Full Employment
Full Employment- means there is no unemployment due
Macroeconomic Equilibrium Per 6 Page 1
Full Employment- means there is no unemployment due
to a recession, is no cyclical unemployment
-Somewhere between 4-5% in U.S.
Goal 2: Model what happens to macroeconomic
equilibrium when there are changes in AD and AS
Increases in AD: Demand-Pull Inflation
-economy is operating at full-employment
-business and government decide to increase their
spending
-AD curve shifts to the right
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-move from P1 to P2 causes inflation (demand-pull)
-move from Qf to Q1 is GDP Gap, not reaching our
economic potential
Decreases in AD: Recession and Cyclical Unemployment
-Example: Business spending decreases
-AD would decrease and shift left
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-Movement from Qf to Q1 is a recession
-less workers are needed causing cyclical unemployment
Decreases in AS: Cost-Push Inflation
-Example: Major terrorist attack on oil facilities
-Drives oil prices up 300 percent
-high energy prices would drive up production costs and
distribution costs
-AS curve would shift left
-movement from P1 to P2 is Cost-Push Inflation
-movement from Qf to Q1 is a recession
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Increases in AS: Full employment with price
stability
-From 1990 until 2000 U.S experienced growth
without much inflation
-both AD and AS increased
Exit Question: What happens to the
economy if there is a decrease in AS?
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