2 AD/AS Model The AS Curve 3 phases: (1) Flat: occurs during recessions. Note: Price Level = Inflation levelThe AS Curve 3 phases:(1) Flat: occurs during recessions.Unemployment is high, GDP is lowPriceLevelAS13(2) Sloping Section: no recession.Unemployment is relatively low but abovethe Full Employment level (4%)21(3) Vertical Section: Economy is growingtoo fast. Unemployment is belowFull Employment (4%)(i.e. there are Too many jobs!)RealGDPConclusion of AS: The economy has a speed limit. If it grows too fast, you willend up with inflation and no increase in GDP (section 3 of AS curve)
3 AD/AS Model You draw the AD curve on 1-section of the AS curve based on the economic situationAD1UNEMPLOYMENT 3%GDP TOO FASTPriceLevelAS1AD1UNEMPLOYMENT 5%GDP MODERATEAD1RECESSIONRealGDP
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