In AP Macro, long-run equilibrium occurs when the AD and SRAS curves intersect on the LRAS curve, meaning the economy produces at its full-employment level of real output with no output gap and unemployment at its natural rate (EK MOD-2.G.2).
Long-run equilibrium is the economy's "resting state." On the AD-AS graph, it's the point where all three curves (AD, SRAS, and LRAS) pass through the same spot. Because that intersection sits on LRAS, output equals potential output, also called the full-employment level of real GDP. There's no recessionary gap, no inflationary gap, and unemployment sits at its natural rate (only frictional and structural unemployment, no cyclical).
Here's the part that makes it powerful. Long-run equilibrium isn't just a position, it's where the economy wants to go. Per EK MOD-2.I.1, if a demand or supply shock knocks the economy off potential output, flexible wages and prices will eventually shift SRAS until the economy lands back on LRAS, even with zero government action. So when an FRQ says "assume the economy is in long-run equilibrium," it's handing you a clean starting point. Whatever shock comes next creates a gap, and you need to know how the economy gets back.
This term anchors two units. In Unit 3, LO 3.5.A asks you to explain short-run and long-run equilibrium on the AD-AS graph, and LO 3.7.A asks how the economy self-adjusts back to long-run equilibrium after a shock. In Unit 5, the same idea reappears in Phillips curve form. Per EK MOD-3.A.4, long-run equilibrium is where the SRPC intersects the vertical LRPC at the natural rate of unemployment. If you can identify long-run equilibrium in both models, you can translate between them, which is exactly what Unit 5 questions test. It also frames the policy debate. If the economy fixes itself in the long run, why intervene? That tension between self-adjustment and active fiscal or monetary policy runs through the entire second half of the course.
Keep studying AP Macroeconomics Unit 3
Long-Run Self-Adjustment (Unit 3)
Long-run equilibrium is the destination; self-adjustment is the trip. After a shock creates a gap, flexible wages shift SRAS until the economy is back on LRAS. A recessionary gap means falling wages shift SRAS right; an inflationary gap means rising wages shift SRAS left.
Long-Run Phillips Curve (Unit 5)
The Phillips curve model is the AD-AS story told in unemployment-and-inflation language. Long-run equilibrium on AD-AS (all three curves intersecting) corresponds to the SRPC crossing the vertical LRPC at the natural rate of unemployment. Same economy, two graphs.
Potential Output and Full Employment (Unit 3)
Long-run equilibrium is defined by these. The economy is in long-run equilibrium only when actual output equals potential output, which is the level produced when all resources are fully employed. If output is above or below potential, you're in a gap, not long-run equilibrium.
Crowding Out (Unit 5)
Fiscal policy can speed the return to full employment, but deficit-financed spending raises real interest rates and crowds out private investment. Per EK POL-3.C.4, less investment means slower capital accumulation, which can shift LRAS itself. So policy choices today can move where long-run equilibrium sits tomorrow.
"Assume the economy is in long-run equilibrium" is one of the most common FRQ openers in AP Macro. It appeared in the 2017 short answer, the 2021 FRQ on Sweden, and the 2025 FRQ on Vortania. The phrase is your setup instruction. Draw a correctly labeled AD-AS graph with AD, SRAS, and LRAS all intersecting at one point, label equilibrium output at full employment (Yf) and the price level, then apply whatever shock the question throws at you. Multiple choice questions test the concept from the other direction. You'll see stems asking what mechanism returns the economy to long-run equilibrium without policy intervention (answer: flexible wages and prices shifting SRAS), or asking you to identify whether a short-run equilibrium below potential GDP is a recessionary gap. The trap answers usually involve government action, so remember that self-adjustment happens through wage flexibility, not policy.
Short-run equilibrium only requires AD to intersect SRAS (EK MOD-2.G.1), and that intersection can land below, at, or above full-employment output. Long-run equilibrium adds a third condition, that the intersection sits ON the LRAS curve (EK MOD-2.G.2). So every long-run equilibrium is also a short-run equilibrium, but most short-run equilibria are not long-run ones. If AD and SRAS cross to the left of LRAS, that's a recessionary gap; to the right, an inflationary gap. Check where the intersection sits relative to LRAS before you name the state of the economy.
Long-run equilibrium occurs where AD, SRAS, and LRAS all intersect at the same point, so the economy produces exactly at full-employment output.
At long-run equilibrium there is no output gap and unemployment equals its natural rate, meaning there is no cyclical unemployment.
Without any government action, flexible wages and prices shift SRAS to close gaps and return the economy to long-run equilibrium (EK MOD-2.I.1).
In the Phillips curve model, long-run equilibrium is the intersection of the SRPC and the vertical LRPC at the natural rate of unemployment.
A shift in LRAS changes the long-run equilibrium itself because it changes the full-employment level of output, which is what economic growth looks like on the graph.
Demand and short-run supply shocks move output away from long-run equilibrium only temporarily; in the long run the price level changes but output returns to potential.
It's the state where the AD and SRAS curves intersect on the LRAS curve, so the economy produces at full-employment output with unemployment at its natural rate. On a graph, all three curves pass through one point.
No. It means unemployment is at its natural rate, which still includes frictional and structural unemployment. What's gone is cyclical unemployment, the kind caused by recessions.
Short-run equilibrium is just AD intersecting SRAS, and it can happen above or below potential output, creating inflationary or recessionary gaps. Long-run equilibrium requires that intersection to sit on LRAS, at full-employment output.
Through flexible wages and prices. In a recessionary gap, high unemployment pushes wages down, shifting SRAS right until output returns to potential. In an inflationary gap, tight labor markets push wages up, shifting SRAS left. Either way, output ends back on LRAS.
It's where the short-run Phillips curve intersects the vertical long-run Phillips curve, at the natural rate of unemployment (EK MOD-3.A.4). Points to the left of that intersection represent inflationary gaps, and points to the right represent recessionary gaps.