Short-Run Macroeconomic Equilibrium
Three Possible Situations
1. Long-Run Equilibrium (At Full Employment)
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Long-run equilibrium: AD = SRAS at LRAS — Y = Yf, unemployment at natural rate
2. Recessionary Gap (Below Full Employment)
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Recessionary gap: Y < Yf — high unemployment, output below potential
3. Inflationary Gap (Above Full Employment)
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Inflationary gap: Y > Yf — low unemployment, economy overheating
Summary of Gaps
Calculating the Size of the Gap
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AP Exam Tips
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Common Mistakes
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