Unit 3.2·Macroeconomics

Macroeconomic Equilibrium

Variations in Economic Activity: Aggregate Demand and Aggregate Supply

AO2·AO4·Diagram required

Syllabus requirement

Equilibrium occurs where AD intersects SRAS or LRAS; different implications under monetarist vs. Keynesian models.

Assessment objectives

AO2 Application and AnalysisAO4 Use of Appropriate Skills

Required diagram: Short-run equilibrium (AD–SRAS intersection), long-run equilibrium with LRAS (monetarist), and Keynesian equilibrium with possible output gaps.

Summary

Macroeconomic equilibrium describes where aggregate demand (AD) equals aggregate supply (short-run SRAS or long-run LRAS), which determines the general price level and real GDP. Different models (monetarist/new classical and Keynesian) disagree about whether the economy self-corrects to the full employment level of output; this affects whether policy intervention is needed to remove inflationary or deflationary gaps.

Real-world examples for this unit

Airplane, freight truck and telephone network representing U.S. deregulation

U.S. Deregulation of Transportation and Telecommunications

Market-Based Supply-Side Policy1978 to 1996

U.S. dollar relief payments and government support during the COVID-19 economic downturn

U.S. COVID-19 Fiscal Relief Response

Expansionary Fiscal Policy2020 to 2021

Bank of Japan building with an upward interest-rate symbol

Bank of Japan Interest Rate Hikes in 2025

Contractionary Monetary Policy2025

European Central Bank building with a downward interest-rate symbol

ECB Interest Rate Cuts in 2025

Expansionary Monetary Policy2025