Chapter 14, Big AD and AS general equilibrium system (2 points): Assume that the short-run equilibrium output and price combination (Lq,Peq) is…
Assume that the short-run equilibrium output and price combination Yeq,Peq is characterized by the point where the aggregate demand curve AD intersects the short-run aggregate supply curve SRAS. Aggregate demand AD is determined by IS-LM equilibrium. That is, aggregate demand is (Y,P) combinations consistent with market clearing in the goods market (IS) and in the money market (LM). The equilibrium equations for this economy are […]