What ensures that the economy is in equilibrium

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Reference no: EM131099414

Equilibrium in our graph of AD and SRAS occurs where AD = SRAS. Unless otherwise specified, we assume that the economy rapidly moves to equilibrium. What ensures that the economy is in equilibrium?

fiscal policy is used by the government (i.e. Congress and the President)

AD shifts but SRAS does not until AD = SRAS

monetary policy is used by the Fed (i.e. the Federal Reserve -- our country's "central bank")

SRAS shifts but AD does not until AD = SRAS

There is inflation or deflation until SRAS = AD. As this happens, you move along the AD and SRAS curves.

Reference no: EM131099414

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