Download presentation

Presentation is loading. Please wait.

Published byBranden Dolton Modified over 2 years ago

1
THE AD-AS MODEL Macroeconomic Equilibrium

2
Short-Run Macroeconomic Equilibrium Short-run equilibrium (E SR ) is the point where AD curve intersects the SRAS curve. It is the point at which aggregate output supplied equals aggregate quantity demanded On the graph: P E is the short-run equilibrium aggregate price level Y E is the short-run equilibrium aggregate output

3
Self-correcting nature of Equilibrium If the price level is above the P E (like P 2 ), quantity supplied exceeds quantity demanded, which leads to a fall in aggregate price level and movement back toward P E. If the price level is below the P E (like P 1 ), quantity supplied is less than demand, so prices will rise to move back to P E. But this is in the LONG-RUN

4
AD Shifts An event that shifts AD curve is known as a demand shock (whether negative or positive). Demand shocks move Price Level and output in the same direction. AD 1 AD 2

5
SRAS Shifts An event that shifts SRAS curve is known as a supply shock (whether negative or positive). Supply shocks move Price Level and output in the opposite directions. SRAS 2 SRAS 3

6
Short-Run Effects of SRAS Shifts Leftward shift of SRAS leads to stagflation – rising prices and falling output (as well as rising unemployment). Rightward shift of SRAS results in more purchasing power and greater employment.

Similar presentations

© 2017 SlidePlayer.com Inc.

All rights reserved.

Ads by Google