AP Macroeconomics AMSCO Guided Notes
3.5: Equilibrium in the AD-AS Model
AP Macroeconomics Guided Notes
AMSCO 3.5 - Equilibrium in the AD-AS Model
Essential Questions
- How does the AD-AS model reflect the economic fluctuations and production decisions that affect prices and GDP?
I. Equilibrium and the AD-AS Model
1. What is economic equilibrium and how does it relate to market supply and demand?
2. How does the AD-AS model help economists understand the economy?
II. Short-Run Macroeconomic Equilibrium
1. What conditions define short-run macroeconomic equilibrium and what do they indicate about employment?
2. How does the AD-AS model respond when the aggregate price level is above or below equilibrium?
3. How does long-run macroeconomic equilibrium differ from short-run equilibrium?
III. Short-Run Output Gaps
A. Inflationary Gap
1. What is an inflationary gap and what economic conditions cause it to develop?
2. How do aggregate output, prices, employment, and wages change when an inflationary gap occurs?
B. Recessionary Gap
1. What is a recessionary gap and what happens to unemployment and prices when it occurs?
2. How do producers respond to a recessionary gap and what adjustments lead to equilibrium?
Key Terms
aggregate demand
aggregate supply
aggregate demand-aggregate supply model (AD-AS)
equilibrium
short-run macroeconomic equilibrium
short-run equilibrium aggregate price level
short-run equilibrium aggregate output
long-run macroeconomic equilibrium
output gap