Short-run Macroeconomic Equilibrium Below or Above Full Employment
Short-run macroeconomic equilibrium only occurs when the amount of real GDP demand equals the amount of GDP supply. On a graph, this happens at the point where the AD curve intersects the short-run average supply curve, exactly on the long-run…
Long-run Full Employment, Recessionary Gap, Inflationary Gap, and Stagflation
Long-run Full Employment Long-run full employment equilibrium occurs when the aggregate demand (AD) curve cuts the short-run aggregate supply curve (SRAS) at a point on the long-run aggregate supply curve (LRSS): Since the intersection occurs at a point on the…
Fluctuations in Aggregate Demand and Supply
Economists believe that business cycles and fluctuations in GDP levels result from a shift in the aggregate demand or supply curve. The Business Cycle The business cycle (economic expansions and contractions) is mainly caused by changes in the short-run value…
Movements along and Shifts in Aggregate Demand and Supply Curves
Aggregate demand (AD) and aggregate supply (AS) curves address economic issues such as expansions and contractions of the economy, causes of inflation, and changes in unemployment levels. Movements along these curves are caused by price level variations, while shifts of…
Aggregate Supply
Aggregate supply refers to the total amount of goods and services that firms in an economy are both willing and able to sell at a given price level. We must differentiate between the short- and long-run aggregate supply curves. The…
Aggregate Demand
Aggregate Demand (AD) represents the quantity of goods and services that households, businesses, and government and international customers want to buy at any given level of prices. Aggregate Supply (AS) represents the quantity of goods and services that producers are…
Fundamental Relationship Among Saving, Investment, Fiscal Balance, and Trade Balance
Saving and investing are often used interchangeably, but there is a difference between them. Saving is setting aside money for emergencies or a future purchase. On the other hand, investing is buying assets such as real estate, stocks, or bonds…
Measures of Central Tendency
Measures of central tendency are values that tend to occur at the center of a well-ordered data set. As such, some analysts call them measures of central location. Mean, median, and mode are all measures of central tendency. Even then,…
Comparing GDP, National Income, Personal Income, and Personal Disposable Income
GDP GDP stands for Gross Domestic Product. It refers to the market value of all goods and services produced within an economy in a given period of time. Equivalently, GDP also refers to the total income earned by each household,…
Nominal GDP, Real GDP and GDP Deflator
It is economically healthy to exclude the effect of general price changes when calculating the GDP. This is because higher (lower) income caused by inflation does not indicate a higher (lower) level of economic activity. Real GDP Economists describe real GDP…
