What defines the equilibrium level of output in the AD-AS model?

The equilibrium level of output in the Aggregate Demand-Aggregate Supply (AD-AS) model is defined by the point at which aggregate demand equals aggregate supply. This equilibrium indicates a balance in the economy where the total quantity of goods and services demanded by consumers, businesses, the government, and foreign buyers matches the total quantity of goods and services that businesses are willing to produce and sell at a given price level.

At this equilibrium, there are no inherent forces pushing either demand or supply to change, meaning that the economy is stable at this output level, barring any external shocks or policy actions. Changes in aggregate demand or aggregate supply can lead to shifts in this equilibrium, resulting in either inflation or recession depending on the direction and magnitude of the shifts. Therefore, identifying the correct equilibrium point is crucial for understanding macroeconomic fluctuations and guiding economic policy.