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    Ad As Model 1 - Introduction

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    nguyenthihuong120304
    This document provides an introduction to aggregate demand (AD) and aggregate supply (AS) models. It defines key concepts like AD curves, shifts in AD, short-run and long-run AS curves, and macroeconomic equilibrium. Examples are given of how equilibrium changes with shifts in AD or AS.

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    Ad As Model 1 - Introduction

    Uploaded by

    nguyenthihuong120304
    8 views3 pages
    This document provides an introduction to aggregate demand (AD) and aggregate supply (AS) models. It defines key concepts like AD curves, shifts in AD, short-run and long-run AS curves, and macroeconomic equilibrium. Examples are given of how equilibrium changes with shifts in AD or AS.

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    ad-as-model-1-_introduction_

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    This document provides an introduction to aggregate demand (AD) and aggregate supply (AS) models. It defines key concepts like AD curves, shifts in AD, short-run and long-run AS curves, and macroeconomic equilibrium. Examples are given of how equilibrium changes with shifts in AD or AS.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    8 views3 pages

    Ad As Model 1 - Introduction

    Uploaded by

    nguyenthihuong120304
    This document provides an introduction to aggregate demand (AD) and aggregate supply (AS) models. It defines key concepts like AD curves, shifts in AD, short-run and long-run AS curves, and macroeconomic equilibrium. Examples are given of how equilibrium changes with shifts in AD or AS.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    You are on page 1of 3

    AD-AS model 1 (introduction)

    1 Aggregate demand (AD)

    11 Aggregate demand curve vs. demand curve

    Aggregate demand curve Demand curve

    Price level
    Price

    AD Demand

    rGDP
    Quantity
    rGDP = real gross
    domestic product
    AD-Curve Demand curve
     refers to the whole economy  refers to a single market (e.g.
    market for oranges)
     x-axis: Real GDP  x-axis: Quantity of oranges
     y-axis: Price level  y-axis: Price of oranges

    12 AD = C + I + G + (X-M)
    C = Consumption / I = Investment / G = Government spending /
    X = Exports / M = Imports

    13 Changes in AD

    Movements along the AD-curve Shifts in AD

    Price level (PL) Price level


    1
    AD
    2 AD1
    AD2 AD0
    rGDP rGDP
    If PL falls, then rGDP rises. Change in C,I,G,X or M:
    If PL rises, then rGDP falls. 1 Increase in AD
    (ceteris paribus in both cases) 2 Decrease in AD

    AD-AS model 1 (introduction).doc Page 1 (of 3) 2019-04-10


    2 Aggregate supply (AS)

    21 Short-run AS vs. long-run AS

    Short-run AS (normal range) Long-run AS

    Price level Price level


    AS AS

    rGDP rGDP
    Some input prices (e.g. wages) are fixed. All input prices have changed.

    22 Short-run AS and business cycle

    1 Depression range; re-


    3 sources are unemployed
    (Keynesian range).

    2 2 Normal range

    1 3 Full-employment range
    rGDP (classical range)

    23 Changes in AS

    Movements along the AS-curve Shifts in AS

    Price level Price level


    AS AS0
    AS2 2 1
    AS1

    rGDP rGDP
    If PL falls, then rGDP falls, too. Change input factors:
    If PL rises, then rGDP rises, too. 1 Increase in AS (e.g. higher productivity)
    (ceteris paribus in both cases) 2 Decrease in AS (e.g. less capital)

    AD-AS model 1 (introduction).doc Page 2 (of 3) 2019-04-10


    3 Macroeconomic equilibrium

    31 Equilibrium in general

    A macroeconomic equilibrium exists where rGDP demanded equals rGDP supplied. At this
    point, both rGDP and price level are determined.

    Macroecomic equilibrium Short-run eq (equilibrium) equals long-run eq

    Price level Price level


    LRAS SRAS
    AS
    PL* PL*

    AD AD
    rGDP rGDP
    rGDP* rGDP*
    SRAS = Short-run aggregate supply
    LRAS = Long-run aggregate supply

    32 Examples of new equilibria

    Shift in AD (e.g. rise in consumption) Shift in AS (e.g. rise in productivity)


    Price level Price level
    AS AS1
    AS2

    AD2
    AD1 rGDP AD
    rGDP

    33 Gaps between the short-run equilibrium and the long-run situation

    Recessionary gap Inflationary gap


    Price level Price level
    LRAS LRAS
    SRAS SRAS
    PL* gap PL* gap

    AD AD
    rGDP rGDP
    rGDP* rGDP*

    AD-AS model 1 (introduction).doc Page 3 (of 3) 2019-04-10

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