Long-run equilibrium occurs when the aggregate demand is equal to the aggregate supply in an economy, resulting in stable prices and full employment over time.
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Short-run Equilibrium: A temporary state where there is an imbalance between aggregate demand and aggregate supply, leading to changes in prices or employment levels.
Potential Output: The maximum sustainable level of real GDP that can be produced by an economy.
Inflationary Gap: When actual output exceeds potential output, causing upward pressure on prices.