This is a excellent presentation on the topic of long run macroeconomics equilibrium .It is prepared by some students of jagannath university,dhaka,bangladesh.

1. Welcome to our
Presentation
GROUP NO: 4

2. Our Topic
Long Run Macroeconomics
equilibrium

3. 3
1. DEFINITION OF AGGREGATE DEMAND AND AGGREGATE
SUPPLY
MODEL OF AD AND AS
2. DEFINITION OF EQUILIBRIUM
3. WHY AGGREGATE DEMAND CURVE IS DOWNWARD SLOPING?
4. DEFINITION AND DIFFERENCE BETWEEN LONG RUN AND SHORT RUN
5.WHY LONGRUN AGGREGATE SUPPLY CURVE IS VERTICAL ?
6. DEFINITION OF UNEMPLOYMENT
a.FULL EMPLOYMENT
b.LESS THAN FULL EMPLUYMENT
c. MORE THAN FULL EMPLOYMENT
7. DEFINITION OF real GDP and potential GDP
8. SHORT RUN AND LONG RUN EQUILIBRIUM
9. CONCLUSION
Our Contents

4. “▸DEFINITION OF AGGREGATE DEMAND
Aggregate Demand is the relationship between the quantity of real GDP
demanded and the price level.
AD=C+I+G+(X-M)
▸DEFINITION OF AGGREGATE SUPPLY
Aggregate supply, also known as total output, is the total supply of goods and
services produced within and economy in a given period of time.
AS=N+T+K

5. 5
WHY AGGREGATE DEMAND CURVE DOWNWARD SLOPING?
Two reasons :
1. Wealth Effect - When the price level rises but other
things remain the same, real wealth decreases. Such as Bond,
Debenture, Cash in pocket.
2. Substitution Effects When the price level rises and
other things remain the same, interest rates rise. As a result people cut
off their consume and AD decrease.

6. 6
The macroeconomics long run
▸It is the time frame that is sufficiently long for the real wage rate to
have adjusted to achieve full employment.
Where,
 real GDP is equals to the potential GDP
 unemployment at natural rate
Changes all variables AS = F[N + K + T]
here N=Labor
K= Capital
T=Technology
THE DIFFERENCE BETWEEN LONG RUN & SHORT RUN

7. 7
The macroeconomics short run
It is a time frame during at least one variable remains constant
when
 real GDP might be below or above the potential GDP
 unemployment might be above or below the natural rate
AS = F[ N + K + T ]
here
N= labor
K= capital [ constant ]
T= technology [ constant]

8. Part. 2

9. ▪ Long run AS curve is vertical because potential GDP is independent of
the price level.
It depends on 1. The price level
2. The money wage rate
▪ When the price level and money wage rate change by the same
percentage, the real wage rate remains constant at full-employment
equilibrium. Employment remain constant and real GDP remains at
potential GDP
Why long run aggregate supply
curve is vertical?

10. Real gross domestic product (GDP) is an inflation-adjusted
measure that reflects the value of all goods and services
produced by an economy in a given year.
Definition of real GDP

11. Definition of potential GDP
The value of production when all the economy’s labor,
capital, land, and entrepreneurial ability are fully
employed; the quantity of real GDP at full employment.

12. Employment
Situation
1. full-employment is an equilibrium, in which real
GDP equals potential GDP
2. A Less than full-employment equilibrium
is an equilibrium in which potential GDP exceeds real GDP.
3. An above full-employment equilibrium
is an equilibrium in which real GDP exceeds potential GDP

13. 3
How to achieve short run & Long
run equilibrium ?

14. Short Run Equilibrium
Equilibrium occurs when real GDP demanded is equal to real GDP supplied
SAS = Short run aggregate supply
curve
AD = Aggregate Demand
Equilibrium occurs AD intersect SAS
and 115 is equilibrium price.( In trillion )
E

15. Long run equilibrium occurs when real GDP equals to the potential GDP
In equilibrium, Natural rate of unemployment
Price level and money wage rate change
in same percentage
Point E* indicates the long run and potential equilibrium. Where,
1. R.GDP is equal to P.GDP
2. Money wage rate adjusted to make R.W.R same.
LONG RUN MACROECCONOMICS EQUILIBRIUM
In long run potential GDP and AD determine the price level
And price level influence the money wage rate

16. In a more than full employment equilibrium situation R.GDP
is more than potential GDP
1. Unemployment rate is less than natural rate
2. Bargaining power will increase
3. Labor availability decrease
4. Wage rate increase, Cost of production increase
5. Supply decrease to potential GDP
SAS2
115
120
11 12 13
E2
E3
E1
An increasing export increase the real GDP and AD curve shift rightward to AD1
6. Supply curve shift to the leftward, price rises
EFFECT OF MOU OF GOVERNMENT

17. 1. In this recession, an unstable equilibrium E2
2. R.GDP is less than potential GDP
3. Unemployment rate is high
4. Govt. expenditure increases the demand
AD= C +I+G +(X-M)
AD= C +I
5. Demand increases and Price level also
increases
6. And R.GDP equals to Potential GDP
7.New stable equilibrium E3
1
0
12
115
120
11
E1
E2
E3
EFFECT OF FLOOD OF 2017 IN BANGLADESH

18. Conclusion
References:
 MICHAEL PARKIN – MACROECONOMICS
 WIKIPEDIA

19. The End
Thank you All
…..