Aggregate Demand and Aggregate Supply - The AD-AS Model
4 important questions on Aggregate Demand and Aggregate Supply - The AD-AS Model
What is the point at which AD intescts SRAS curves? What is it? By whom is it experienced?
the point at which the quantity of aggregate output supplied is equal to the quantity of aggregate output demanded
by households, businesses, the government, and the rest of the world
When are the 2 only times short run equilibrium aggregate output and short run equilibrium aggregate price level can change?
- short run aggregate output and short run equilibrium aggregate price level can change
- because of shifts in the AD to bring it back to short run equilibrium aggregate output, but cause inflation
- shifts of the SRAS curve , that fixed both short run equilibrium aggregate output and short run equilibrium aggregate price level
Reminder: what are the determinants of demand? And how can they be use here? What are the events that shift demand curve called?
- The change in expectations about income or GDP
- The change in wealth
- the changes in existing stock of physicals capital
- The change or use of fiscal or monetary policy
because the government cannot directly affect the AS, it will try to deal with a recession by influencing the AD so that the economy could go back to equilibrium output.
the events that shift demand curve are called Demand shock
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When does a shift of the AD curve to the left occur? And what happens to the SR equilibrium aggregate price level and SR equilibrium aggregate output? In which direction do they both move?
- negative demand shock
- this leads to a lower short run equilibrium aggregate output and short run equilibrium aggregate price level
- demand shocks causes aggregate output and aggregate price level to move in the same direction
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