Equilibrium

The intersection of the AD and AS curves determines the economy's equilibrium price level and equilibrium real domestic output.

· Beyond full-employment (Y3)

inflation, low unemployment

· Below full-employment (Y1)

negative growth, negative inflation

· At full employment (Y2)

stable prices, low inflation, low unemployment steady,

economic growth

Ratchet effect.

· is commonly observed phenomenom that some processes cannot go backwards once certain things have happened.

· the producers observe that shifting-down AD leads to changes in equilibrium, but not in the price level. Prices are stable.

Рост совокупного спроса вызывает рост цен на товары, но сокращение совокупного спроса не приводит к снижению совокупного уровня цен.

The Keynes' equilibrium model.

The condition of equilibrium is the equal quantity of aggregate expendditures (AE) and aggregate output (AV).

AE: C+I+G+Xn

AV: GDP