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Mr. Mayer AP Macroeconomics

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Presentation on theme: "Mr. Mayer AP Macroeconomics"— Presentation transcript:

1 Mr. Mayer AP Macroeconomics
The AS/AD Model

2 The AS/AD Model The equilibrium of AS & AD determines current output (GDPR) and the price level (PL) LRAS SRAS PL P AD YF GDPR

3 Full Employment Full Employment equilibrium exists where AD intersects SRAS & LRAS at the same point. LRAS SRAS PL P AD YF GDPR

4 Recessionary Gap A recessionary gap exists when equilibrium occurs below full employment output. SRAS LRAS PL P AD Y YF GDPR

5 Inflationary Gap An inflationary gap exists when equilibrium occurs beyond full employment output. LRAS SRAS PL P AD YF Y GDPR

6 Changes (Δ) in AD Δ Consumption (C) Δ Gross Private Investment (IG)
C↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑ C↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓ Δ Gross Private Investment (IG) IG↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑ IG↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓ Δ Government Spending (G) G↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑ G↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓ Δ Net Exports (XN) XN↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑ XN↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓

7 C↑, IG↑, G↑ and/or XN↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑
Increase in AD SRAS LRAS PL P1 P AD1 AD Y YF GDPR C↑, IG↑, G↑ and/or XN↑ .: AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑

8 C↓, IG↓, G↓ and/or XN↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓
Decrease in AD LRAS PL SRAS P P1 AD AD1 YF Y GDPR C↓, IG↓, G↓ and/or XN↓ .: AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓

9 Changes (Δ) in SRAS Δ Input Prices Δ Productivity
Input Prices↓ .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓ Input Prices↑ .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑ Δ Productivity Productivity↑ .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓ Productivity↓ .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑ Δ Legal-Institutional Environment Deregulation .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓ Regulation .: SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑

10 Increase in SRAS Input Prices↓, Productivity↑, and/or Deregulation
LRAS PL SRAS1 P P1 AD Y YF GDPR Input Prices↓, Productivity↑, and/or Deregulation .: SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓

11 Decrease in SRAS Input Prices↑, Productivity↓, and/or Regulation
LRAS PL SRAS P1 P AD Y1 YF GDPR Input Prices↑, Productivity↓, and/or Regulation .: SRAS  .: GDPR↓ & PL↑ .: u%↑ & π%↑

12 AS / AD Summary ΔC, ΔIG, ΔG, and/or ΔXN = Δ AD
AD  .: GDPR↑ & PL↑ .: u%↓ & π%↑ AD  .: GDPR↓ & PL↓ .: u%↑ & π%↓ Δ Input Prices, Δ Productivity, and/or Δ Regulation = Δ SRAS SRAS  .: GDPR↑ & PL↓ .: u%↓ & π%↓ SRAS  .: GDPR↓ & PL ↑ .: u%↑ & π%↑ The AS/AD Model is the most important graph in AP Macroeconomics. KNOW IT!!!


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