Study Guide – Lesson 10 (AD-AS Model)

Study Guide – Lesson 10 (AD-AS Model) - Study Guide...

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Study Guide – Lesson 10 (Aggregate Demand – Aggregate Supply Model) What are the major differences between the AE and AD-AS models? AE focused on the demand side = prices are sticky AD – AS addresses both the demand side and supply side = shows flexibility in prices What is the definition of aggregate demand? Level of output demanded at various price levels What are the determinants of aggregate demand? Be able to show on a graph what an increase or decrease in aggregate demand looks like. Consumption Gov. Spending Investment Spending Net exports What is the definition of aggregate supply? Level of output firms will collectively supply at various price levels What is the difference between short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS)? SRAS – There is slack; menu costs and contracts are largely unchanged or are just beginning to rise; prices are flexible LRAS – Full employment; taking up all the slack; prices rising
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