The aggregate demand/ aggregate supply models

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THE AD/AS MODELImage result for the as ad model
  • The equilibrium of AD and AS determines the current output (REAL GDP) and the price level (PL)
  • Full Employment
    • Full employment equilibrium exists where AD intersects SRAS and LRAS at the same point.
Image result for recessionary gap
  • Recessionary Gap
    • A recessionary gap exists when equilibrium occurs below full employment output.
Image result for inflationary gap
  • Inflationary Gap 
    • An inflationary gap exists when equilibrium occurs beyond full employment output.
CHANGES (𝚫) in AD


Image result for increase in AD

Image result for decrease in ad
CHANGES in SRAS

INCREASE

Image result for increase sras
DECREASE
Image result for decrease sras
THREE RANGES 
  • Horizontal or Keynesian Range: A lot of unemployed resources which creates a recession or depression. 
    • Includes only levels of real GDP that are less than the full employment output.
  • Intermediate Range: Resources are getting closer to the full employment level, which creates pressure on wages and prices.
  • Vertical/Classical Range: Where real GDP is at a level with unemployment at the full employment level, and where any increase in demand will result only in an increase in prices.
    • The economy is unable to produce any more goods and services for a sustainable period of time.

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