Macroeconomic Equilibrium: Balance in the Short Run
Reaching Short-Run Equilibrium
In this section, we examine how the macroeconomy achieves short-run equilibrium. Considering Figure 5-11, we have done enough economics to realize that equilibrium occurs where the two curves, AD1 and SRAS1, intersect, at an aggregate price level of P* and an output level of y*. However, it is worthwhile to trace through the process by which the economy achieves that equilibrium.
Figure 5-11. Short-run equilibrium.
To analyze the equilibrating process, let us suppose that the AD curve initially is at AD0, and that the equilibrium price and output are P0 and y ...