1
221
The
IS – LM
/
AD – AS
Model:
A General Framework for
Macroeconomic Analysis,
Part 2
222
Agenda
•
Aggregate Demand and Aggregate Supply
223
Aggregate Demand and Aggregate Supply
• The
ADAS
model is derived from the
ISLM
model.
¾
The two models are equivalent.
¾
Depending on the particular issue, one model may
prove more useful than the other model.
• The
ISLM
model relates the real interest rate to output.
• The
ADAS
model relates the price level to output.
224
The
AD
Curve
•
The aggregate demand curve:
¾
The
AD
curve shows the relationship between the
quantity of goods demanded and the price level
when the goods market and
the asset market are in
equilibrium.
•
So the
AD
curve represents the price level and output
level at which the
IS
and
LM
curves intersect.
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2
225
Derivation of the
AD
Curve
r
Y
Y
P
226
The
AD
Curve
Y
P
227
The
AD
Curve
•
The aggregate demand curve:
¾
The
AD
curve is unlike other demand curves,
which relate the quantity demanded of a good to its
relative price.
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 Summer '10
 Wood
 Supply And Demand, AD curve

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