what changes in AD makes the AD equal to potential GDP?
More information is required. Equilibrium real GDP occurs at the intersection of the AD and AS. If equilibrium GDP is below potential GDP then there exists and “income gap”. Using Okun’s Law, we can determine the rate of cyclical unemployment from this gap. Moving the AD to the right will increase equilibrium GDP and reduce the unemployment rate. This can occur for several reasons including: an increase in government spending, a reduction in taxes, a reduction in the interest rate, a reduction in the exchange rate, an increase in consumer wealth or confidence, an increase in business confidence and investment spending etc. The shape of the AS is important, because a rightward shift of the AD when the AS is fairly steep will cause an increase in price, not a large increase in GDP.
