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Demand and
Aggregate
Supply
Contents
Aggregate Demand and AD Curve
Changes in Aggregate Demand
Aggregate Supply
AS curve (Short Run)
AD-AS Equilibrium
Effects of shift to Equilibrium
AS curve (Long Run)
AD-AS Curve (With Long Run)
Aggregate Demand
AD-Curve
The AD curve shows the relationship between AD and the price level.
It is assumed that the AD curve will slope down from left to right.
This is because all the components of AD, except imports, are inversely related to
the price level.
AD-Curve
Price Level
GDP=C+I+G+NX
Output
Wealth Vs Consumption
140
120
100
80
60
40
20
0
Output
Case 1
Wealth
Case 2
Consumption
Consumption Vs Saving
P1
40
Amount
Spent on
Goods
Savings
Supply of
Money
for
Lending
Interest
rates
Demand
60
P2
60
40
20
40
60
80
100
Savings
120
140
Consumption Vs Saving
P1
40
60
P2
60
40
20
40
60
80
100
120
140
Savings
Output
Aggregate Supply
Price Level
Decrea
se in
Aggreg
ate
supply
Output
Increase in
Aggregate
supply
Output
2.
AS
Productivity
An Increase in physical Capital?
3.
AS
Money AS
Decrease in tax on producers?
AD-AS Equilibrium
Price Level
Pe
Q
e
Output
Price Level
P1
Pe
P2
Q
e
Output
P
Q
1
Output
Q
2
Output
Price Level
Price Level
P1
Pe
P2
Q
e
Output
Q
1
Output
P
Q
Output
Aggregate Supply
Output
AD-AS Curve
Price Level
Price Level
Price Level
Aggregate
Supply
(Long Run)
Aggregate
Supply
(Long Run)
Aggregate
Supply
(Long Run)
P2
Pe
P1
Q
e
Output
Recessionary
Situation
Output
Inflationary
Situation
Output