Unit 3: AD/AS Model

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The equilibrium of AS and AD determines current output (GDPR) and the price level (PL)

Full Employment: occurs where AD intersects SRAS and LRAS at the same time.

Recessionary Gap: exists when equilibrium is below full employment output

Inflationary Gap: exists when equilibrium is beyond full employment output

Changes in AD (u = employment, 𝛑 = inflation)

  • Consumption 
  • Gross Private Investment
  • Government Spending
  • Net Exports


Changes in SRAS: 
  • Input prices
  • Productivity 
  • Legal Institutional Environment 


Comments

  1. UnknownApril 3, 2018 at 6:11 AM

    GDP and Price Level have an inverse relationship, while Unemployment and Inflation have a direct relationship.

    ReplyDelete

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