hi everybody macroeconomic equilibrium occurs where aggregate demand equals aggregate supply the problem is though there are so many different ways of showing aggregate supply meaning there are numerous ways of showing macro equilibrium in this video we're going to cover all those different ways looking at the classical model and the Keynesian model let's go straight to the classical model classical economies believe that there are two types of equilibrium we have short run macro equilibrium and we have long run macro equilibrium short run equilibrium occurs where a d equals sres but does not equal lras there are two ways of showing that this diagram here and the middle diagram here are both short-term equilibria let's look at this left-hand diagram first you can see that where a d equals sres is not equal to lrs we're producing y1 in the economy not yfe this deviation must be a short run equilibrium according to classical economies because we're not at yfe in the long run this will not persist we'll get back to yfe this is known as a deflationary gap or a recessionary gap or a negative outper Gap they all mean the same thing I cover those Concepts in much more detail in my output gaps video in this playlist go and have a look at that for further detail and we can also look at it in this way where 80 equals sres is not equal to lres we're producing an output level in the economy which is greater than yfe and that cannot persist in the long run in the long run we get back to yfe this is known as an inflationary Gap or a positive output Gap again my output gaps video covers that in more detail how on Earth is that possible well remember what a yfe is yfe is the maximum level of output an economy can produce using all of its factors of production at sustainable levels so it is possible to produce Beyond yfe if we use our factors of production unsustainably so for example we use labor unsustainably they're working overtime too much over time they're going to burn out if we use Capital Machinery 24 hours a day that's unsustainable that again will burn out or break down so it's possible in the short run to produce air but in the long run it's not we're going to be back away with you so this deviation must be a short run equilibrium in the classical model long run equilibrium is when ad equals SRS but crucially it also equals lra so you can see what that looks like here where 80 equals SRS is equal to lrs I.E the economy is at the Full Employment level of output bam there are no gaps here deflationary Gap or recessionary Gap negative power per Gap here inflationary Gap or a positive app per Gap no gaps here we are at yfe where a d equals SRS is equal to NRS the Keynesian way of showing macroeconomic equilibrium is so much easier remember the Keynesian NRS curve looking like that wherever a d cuts it that could be a long run equilibrium in the Keynesian model so what I've shown here A D Cuts lrs we have y1 and P1 even though we're not a yfe according to keynesians that could be a long run equilibrium if I drew a d on the vertical part of lrs that could be long run equilibrium well we are at yfe but if I do 80 here on the horizontal part right that could be a long run equilibrium too so for keynesia in economists wherever ad is on the nris curve that is macroeconomic equilibrium and that can persist in the long run it's a very easy showing it there different interpretations in the classical model that covers macroeconomic equilibrium stay tuned for the next video when we look at shifts of all these different curves I'll see you then