Long-run Equilibrium

Definition

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.

Related terms

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.