Illustrate full employment and potential output under no deliberate fiscal or monetary policy
Use an aggregate demand (AD) and aggregate supply (AS) model in which the short run aggregate supply curve slopes upwards to illustrate the equilibrium level of real GDP and prices if the economy is operating:
If the economy were below full employment in the short run, would it adjust (self adjusting mechanism - no deliberate fiscal or monetary policy) to full employment and potential output over time?