Macroeconomics

Table of Contents

1. Topic pack - Macroeconomics - introduction
2. 2.1 The level of overall economic activity (notes)
3. 2.1 The level of overall economic activity (questions)
4. Section 2.2 Aggregate demand and supply (notes)
   1. Aggregate demand and supply - introduction
   2. The AD/AS model
   3. Aggregate demand curve
   4. Changes in aggregate demand
   5. Short-run aggregate supply (SRAS)
   6. Changes in SRAS
   7. Long run aggregate supply (LRAS) - classical
   8. Changes in LRAS - classical
   9. Long run aggregate supply (LRAS) - Keynesian
   10. Aggregate supply changes
   11. Full employment level of national income
   12. Equilibrium national income
   13. The essentials of AD and AS
   14. Changes in short-run equilibrium - summary
   15. Equilibrium in the long run?
   16. Equilibrium in the Keynesian model
   17. Inflationary and deflationary gaps
   18. Keynes vs. Hayek (video)
   19. The Keynesian multiplier
5. Section 2.2 Aggregate demand and supply (simulations and activities)
6. 2.2 Aggregate Demand and Aggregate Supply (questions)
7. 2.3 Macroeconomic objectives (notes)
8. Low Unemployment
9. 2.3 Macroeconomic objectives (questions)
10. 2.4 Fiscal policy (notes)
11. 2.4 Fiscal policy (questions)
12. 2.5 Monetary policy (notes)
13. 2.5 Monetary Policy (questions)
14. Section 2.6 Supply-side policies (notes)
15. 2.6 Supply-side policies (questions)
16. Print View

Equilibrium in the long run

Syllabus: Equilibrium in the monetarist/new classical model

Syllabus: Explain, using a diagram, the determination of long-run equilibrium, indicating that
long-run equilibrium occurs at the full employment level of output.

Syllabus: Examine why, in the monetarist/new classical approach, while there may be short-term fluctuations in output, the economy will always return to the full employment level of output in the long run.

Syllabus: Examine, using diagrams, the impacts of changes in the long-run equilibrium.

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• Long-run national income equilibrium

Non-inflationary growth

LRAS can be shifted through supply-side policies, and free market economists (Neoclassical) argue that, if these are used, the economy can grow in a non-inflationary way as in Figure 1 below. We will look at these policies in more detail in the next section.

Figure 1 Impact of supply-side policies

It is generally accepted that there is a relationship between output and employment and, that as output increases, so employment will rise. This seems easier to prove in the short term than it is in the long term. For example, if there is make a major breakthrough in technology then output will certainly increase, but will employment or will it cause unemployment?