Inflation - Aggregate Demand – Aggregate Supply Diagram

6 important questions on Inflation - Aggregate Demand – Aggregate Supply Diagram

What does the long-run aggregate supply (LRAS) represent?

A vertical line showing the economy’s potential output Y*.

How is short-run aggregate supply (SRAS) represented?

A horizontal line illustrating the current rate of inflation, based on past expectations.

What is long-run equilibrium in economics?

It is when actual outputs equal potential output with a stable inflation rate.
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How does long-run equilibrium appear graphically?

It occurs when the AD curve, SRAS line, and LRAS line intersect.

What does short-run equilibrium entail regarding inflation and output?

Inflation meets past expectations, and output matches short-run equilibrium output at that rate.

How is short-run equilibrium represented graphically?

It is depicted at the intersection of the AD curve and SRAS line.

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