ECON 2010 Chapter : Econ Chap 13 Stuff

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15 Mar 2019
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Aggregate demand- aggregate supply (ad-as) model has two advantages over the basic keynesian model: analyze fluctuations in both output and the inflation rate. Keynesian model could not explain changes in inflation rate since the assumption that the price level remained fixed: ad-as applies to both short and long run while keynesian model only applied to short run. Ad-as graph has output on x axis and inflation rate on y axis. Long-run equilibrium- a situation in which the ad and as curves intersect at potential output y* Short-run equilibrium- a situation where ad and as curves intersect at a level of real gdp that is above or below potential output y* Can use ad-as model to explain the business cycle: shifts in the ad and as curves push the economy out of long-run equilibrium and shift the ad and as curves bring the economy back as well.

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