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AP Macroeconomics by David Mayer http://tw.neisd.net/webpages/dmayer/files/presentation%20resources.htm http://tw.neisd.net/webpages/dmayer/files/presentation%20resources.htm The AS/AD Model

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The equilibrium of AS & AD determines current output (GDP R ) and the price level (PL) GDP R PL AD SRASLRAS YFYF P

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Full Employment Full Employment equilibrium exists where AD intersects SRAS & LRAS at the same point. GDP R PL AD SRASLRAS YFYF P

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Recessionary Gap A recessionary gap exists when equilibrium occurs below full employment output. GDP R PL AD SRAS LRAS YFYF P Y

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Inflationary Gap An inflationary gap exists when equilibrium occurs beyond full employment output. GDP R PL AD SRASLRAS YFYF P Y

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Changes (Δ) in AD Δ Consumption (C) – C↑.: AD .: GDP R ↑ & PL↑.: u%↓ & π%↑ – C↓.: AD .: GDP R ↓ & PL↓.: u%↑ & π%↓ Δ Gross Private Investment (I G ) – I G ↑.: AD .: GDP R ↑ & PL↑.: u%↓ & π%↑ – I G ↓.: AD .: GDP R ↓ & PL↓.: u%↑ & π%↓ Δ Government Spending (G) – G↑.: AD .: GDP R ↑ & PL↑.: u%↓ & π%↑ – G↓.: AD .: GDP R ↓ & PL↓.: u%↑ & π%↓ Δ Net Exports (X N ) – X N ↑.: AD .: GDP R ↑ & PL↑.: u%↓ & π%↑ – X N ↓.: AD .: GDP R ↓ & PL↓.: u%↑ & π%↓

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Increase in AD C↑, I G ↑, G↑ and/or X N ↑.: AD .: GDP R ↑ & PL↑.: u%↓ & π%↑ GDP R PL AD SRAS LRAS YFYF P Y AD 1 P1P1

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Decrease in AD C↓, I G ↓, G↓ and/or X N ↓.: AD .: GDP R ↓ & PL↓.: u%↑ & π%↓ GDP R PL AD SRAS LRAS YFYF P Y AD 1 P1P1

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Changes (Δ) in SRAS Δ Input Prices – Input Prices↓.: SRAS .: GDP R ↑ & PL↓.: u%↓ & π%↓ – Input Prices↑.: SRAS .: GDP R ↓ & PL ↑.: u%↑ & π%↑ Δ Productivity – Productivity↑.: SRAS .: GDP R ↑ & PL↓.: u%↓ & π%↓ – Productivity↓.: SRAS .: GDP R ↓ & PL ↑.: u%↑ & π%↑ Δ Legal-Institutional Environment – Deregulation.: SRAS .: GDP R ↑ & PL↓.: u%↓ & π%↓ – Regulation.: SRAS .: GDP R ↓ & PL ↑.: u%↑ & π%↑

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Increase in SRAS Input Prices↓, Productivity↑, and/or Deregulation.: SRAS .: GDP R ↑ & PL↓.: u%↓ & π%↓ GDP R PL AD SRAS LRAS YFYF P Y SRAS 1 P1P1

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Decrease in SRAS Input Prices↑, Productivity↓, and/or Regulation.: SRAS .: GDP R ↓ & PL↑.: u%↑ & π%↑ GDP R PL AD SRAS LRAS YFYF P Y1Y1 SRAS 1 P1P1

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AS / AD Summary ΔC, ΔI G, ΔG, and/or ΔX N = Δ AD – AD .: GDP R ↑ & PL↑.: u%↓ & π%↑ – AD .: GDP R ↓ & PL↓.: u%↑ & π%↓ Δ Input Prices, Δ Productivity, and/or Δ Regulation = Δ SRAS – SRAS .: GDP R ↑ & PL↓.: u%↓ & π%↓ – SRAS .: GDP R ↓ & PL ↑.: u%↑ & π%↑ The AS/AD Model is the most important graph in AP Macroeconomics. KNOW IT!!!

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