Equilibrium output and inflation are determined by the intersection of the dynamic aggregate demand curve and either the short-run or long-run aggregate supply curve.
a. The short-run equilibrium point is located where the dynamic aggregate demand curve intersects the short-run aggregate supply curve.
b. The long-run equilibrium point is located where the dynamic aggregate demand curve intersects the long-run aggregate supply curve. At that point, inflation equals expected inflation, which equals the inflation target, and current output equals potential output.
c. Fluctuations in output and inflation come from either:
i. Demand shifts, which cause them to rise and fall together.
ii. Supply shifts, which cause one to rise as the other falls.