Macroeconomics

‭K. Changes in the AD-AS and Phillips Curve Models‬ ‭Since‬‭any‬‭change‬‭in‬‭the‬‭AD-AS‬‭model‬‭will‬‭have‬‭a‬‭corresponding‬‭change‬‭in‬‭the‬‭Phillipe‬‭curve‬‭model,‬‭we‬ ‭can‬‭reflect‬‭the‬‭equilibrium‬‭on‬‭the‬‭AD-AS‬‭model‬‭on‬‭the‬‭Phillips‬‭curve‬‭model‬‭too.‬‭This‬‭model‬‭is‬‭then‬‭used‬ ‭to‬‭understand‬‭the‬‭self-adjustment‬‭mechanism‬‭and‬‭the‬‭dilemmas‬‭faced‬‭by‬‭governments‬‭when‬‭trying‬‭to‬ ‭solve inflation and unemployment.‬ ‭Any‬ ‭point‬ ‭on‬ ‭the‬ ‭SRPC‬‭could‬‭be‬‭where‬‭the‬‭economy‬‭is‬‭currently‬‭operating.‬‭Similar‬‭to‬‭the‬‭PPC‬‭and‬‭the‬ ‭AD-AS‬ ‭model,‬ ‭the‬ ‭SRPC‬ ‭can‬ ‭be‬ ‭used‬ ‭to‬ ‭represent‬ ‭the‬ ‭state‬ ‭of‬ ‭an‬ ‭economy‬ ‭and‬ ‭its‬ ‭position‬ ‭on‬ ‭the‬ ‭business‬‭cycle.‬ ‭SRPC‬‭and‬‭LRPC‬‭intersect‬‭where‬‭the‬‭actual‬‭unemployment‬‭rate‬‭=‬‭NRU‬ ‭and‬ ‭the‬‭actual‬ ‭inflation rate = expected inflation rate.‬ ‭Long-Run Equilibrium on PPC, AD-AS Model, and Phillips Curve Model‬ ‭The‬ ‭SRPC‬ ‭and‬ ‭LRPC‬ ‭only‬ ‭intersect‬ ‭when‬ ‭the‬ ‭economy‬ ‭is‬ ‭in‬ ‭the‬ ‭long-run‬ ‭equilibrium‬ ‭where‬ ‭the‬ ‭economy‬ ‭has‬ ‭reached‬ ‭its‬ ‭full‬ ‭potential‬ ‭at‬ ‭a‬ ‭point‬ ‭where‬ ‭AD,‬ ‭SRAS,‬ ‭and‬ ‭LRAS‬ ‭intersect.‬ ‭This‬ ‭also‬ ‭represents‬‭a‬‭point‬ ‭on‬ ‭the‬‭PPC‬‭where‬‭no‬‭resources‬‭are‬‭underutilized‬‭and‬‭maximum‬‭capacity‬‭is‬‭reached.‬ ‭In summary, long-run equilibrium is illustrated on the three models as follows:‬

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