Long Run Equilibrium with Full Employment (Research Paper Sample)
Long Run Equilibrium with Full Employmentsource..
Long Run Equilibrium with Full Employment
Long run equilibrium with full employment
It occurs when marginal costs equal marginal revenue, which is equal also to total average costs. The time period when there are no production fixed variables, is known as the long-run. Demand and supply define all this.
It is an economic measurement of the amount total for all finished goods and services demand produced in an economy. Aggregate demand is expressed as the amount total of exchanged money for those goods and services at a specific level of price and point in time.
Figure 1; aggregate demand shifts to the right
output; aggregate demand shifts to the left
left351790OutputPrice Level0OutputPrice Level
Figure 2; aggregate demand shifts to the right
In figure 2, original equilibrium at point E0, during a recession, far relatively from the full level of output. The tax cut, by consumption increase, shifts to the right the AD curve. At the equilibrium new (E1), unemployment falls and real output rises, because in the diagram the economy has not reached yet to its level of output, any rise in the level of price remains muted.
Recession and full level of output in the AS/AD Model. Whether there is economy recession is illustrated in the AD/AS model by how close the equilibrium is to the output potential line as indicated by the LRAS vertical line (Gumata, 2017). In this example, the level of output Y0 at the equilibrium E0 is relatively far from the potential output line, so it can represent an economy in recession, well below the full employment level of output.
In macroeconomic analysis the short run is a period in which wages and some other prices respond not to changes in conditions of economy. In certain markets, as conditions of the economy change, prices wages may not adjust enough quickly to maintain equilibrium in these markets (Escobari, 2016). A sticky price is a slow price to adjust to its equilibrium level, creating sustained periods of shortage or surplus. Wage and price stickiness prevent the economy from achieving its natural level of employment and its potential output.
Shifts in Aggregate Demand.
An increase in government expenditure shift AD to the right. Consumer confidence increase can shift from AD0 to AD1, that is AD to the right, When the AD shifts to the right, the new equilibrium (E1) will have a higher output quantity and also a higher-level price compared with the equilibrium (E0) original. In this example, the new equilibrium (E1) is so close to potential GD
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