Balanced Growth

In "Balanced Growth," Aggregate Supply and Aggregate Demand both increase in such a way that the equilibrium price level remains about the same. This is shown in the diagram below.

Figure 6: Balanced Growth

Aggregate Supply has shifted as before, but in this diagram, Aggregate Demand has increased from AD1, shown in dark green, to AD2, shown in light green. This shift is just enough to keep the price level stable at p.

But balanced growth, in this sense, is an ideal, a target to shoot for. How realistic is it?


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