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AP Macroeconomics by David Mayer http://tw.neisd.net/webpages/dmayer/files/presentation%20resources.htm. The AS/AD Model. The AS/AD Model. The equilibrium of AS & AD determines current output (GDP R ) and the price level (PL). LRAS. SRAS. PL. P. AD. Y F. GDP R. Full Employment.

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AP Macroeconomicsby David Mayerhttp://tw.neisd.net/webpages/dmayer/files/presentation%20resources.htm

The AS/AD Model

the as ad model
The AS/AD Model
  • The equilibrium of AS & AD determines current output (GDPR) and the price level (PL)

LRAS

SRAS

PL

P

AD

YF

GDPR

full employment
Full Employment
  • Full Employment equilibrium exists where AD intersects SRAS & LRAS at the same point.

LRAS

SRAS

PL

P

AD

YF

GDPR

recessionary gap
Recessionary Gap
  • A recessionary gap exists when equilibrium occurs below full employment output.

SRAS

LRAS

PL

P

AD

Y

YF

GDPR

inflationary gap
Inflationary Gap
  • An inflationary gap exists when equilibrium occurs beyond full employment output.

LRAS

SRAS

PL

P

AD

YF

Y

GDPR

changes in ad
Changes (Δ)in AD
  • Δ Consumption (C)
    • C↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
    • C↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
  • Δ Gross Private Investment (IG)
    • IG↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
    • IG↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
  • Δ Government Spending (G)
    • G↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
    • G↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
  • Δ Net Exports (XN)
    • XN↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
    • XN↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
increase in ad
Increase in AD

SRAS

LRAS

PL

P1

P

AD1

AD

Y

YF

GDPR

C↑, IG↑, G↑ and/or XN↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑

decrease in ad
Decrease in AD

LRAS

PL

SRAS

P

P1

AD

AD1

YF

Y

GDPR

C↓, IG↓, G↓ and/or XN↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓

changes in sras
Changes (Δ)in SRAS
  • Δ Input Prices
    • Input Prices↓ .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓
    • Input Prices↑ .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑
  • Δ Productivity
    • Productivity↑ .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓
    • Productivity↓ .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑
  • Δ Legal-Institutional Environment
    • Deregulation .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓
    • Regulation .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑
increase in sras
Increase in SRAS

SRAS

LRAS

PL

SRAS1

P

P1

AD

Y

YF

GDPR

Input Prices↓, Productivity↑, and/or Deregulation

.: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓

decrease in sras
Decrease in SRAS

SRAS1

LRAS

PL

SRAS

P1

P

AD

Y1

YF

GDPR

Input Prices↑, Productivity↓, and/or Regulation

.: SRAS  .: GDPR↓ & PL↑ .: u%↑ & π%↑

as ad summary
AS / AD Summary
  • ΔC, ΔIG, ΔG, and/or ΔXN = Δ AD
    • AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
    • AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
  • Δ Input Prices, Δ Productivity,

and/or Δ Regulation = Δ SRAS

    • SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓
    • SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑
  • The AS/AD Model is the most important graph in AP Macroeconomics.
  • KNOW IT!!!
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