Karteikarten
AD-AS Model
Karten in diesem Stapel (8)
- 1Aggregate Demand (AD) Curve- Aggregate Demand: a measurement of the total demand for all finished goods and services produced in an economy at a given time.
- Aggregate Demand (AD) Curve: Shows the relationship between short-run equilibrium output (Y) and the rate of inflation (π) - 2Why is the Aggregate Demand curve downward sloping?Fisher Equation: r = i-π
Y = actual output an economy produced.
• increases → i increases → planned spending decreases (because “C: consumer spending” and “I: business investment” can decrease as the cost of borrowing goes up and consumers are willing to save more than spending) → Y decreases
π and Y are inversely related:
As π decreases, Y increases, and vice versa. - 3What might cause a shift in the Aggregate Demand curve?The Federal Reserve can fight inflation due to an overheated economy (demand-pull inflation) by adopting the contractionary monetary policy
- FED increase the real interest
rate.
• Higher real interest rates reduce consumption (C) and investment (I), lowering overall PAE.
• Leads to a decrease in the
economy's actual output (Y).
• Results in a leftward shift
of the AD curve, representing reduced
economic output. - 4Short-run Aggregate Supply (SRAS)*A horizontal line showing the current rate of inflation, as determined by past expectations and pricing decisions.
- Horizontal because, in
the short run, producers supply output that is demanded at preset prices - 5Long-run aggregate supply (LRAS)*A vertical line showing the economy’s potential output Y*.
- In the long run, the LRAS curve assumes that the economy's resources (labor,
capital, land, and technology) are fully employed - 6Short-run equilibrium*A situation in which inflation equals the value determined by past
expectations and pricing decisions and output equals the level of
short-run equilibrium output that is consistent with that inflation rate.
• Graphically, short-run equilibrium occurs at the intersection of the
AD curve and the SRAS line, which is point “A” in the diagram. - 7Long-run equilibriumLong-run equilibrium: A situation in which actual output (Y) equals potential output (Y*) and the inflation rate is stable.
• Graphically, long-run equilibrium occurs when the AD curve, the SRAS line, and the LRAS line all intersect at a single point, which is point B. - 8How might an economy adjust from a recessionary gap in the long-run?1. Firms that are selling less than they will start to lower prices
2. As π falls, the Fed lowers ‘r’, and AD increases.
3. Falling π reduces uncertainty which also increases AD.
4. As Y increases, cyclical unemployment falls (Okun’s law).
5. Adjustment continues until long run equilibrium is reached.
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- Economics Karteikarten am AD-AS Model, erstellt von Jack Fogel am 01/05/2024.
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- Jack Fogel
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