Aggregate Supply and Aggregate Demand

Aggregate Supply and Aggregate Demand - Aggregate Supply...

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Aggregate Supply and Aggregate Demand Complete AS-AD Model Unlike the aggregate demand curve, the aggregate supply curve does not usually shift independently. This is because the equation for the aggregate supply curve contains no terms that are indirectly related to either the price level or output. Instead, the equation for aggregate supply contains only terms derived from the AS-AD model. For this reason, to understand how the aggregate supply curve shifts, we must work from the AS-AD model as a whole. Figure %: Graph of the AS-AD model depicts the AS-AD model. The intersection of the short-run aggregate supply curve, the long-run aggregate supply curve, and the aggregate demand curve gives the equilibrium price level and the equilibrium level of output. This is the starting point for all problems dealing with the AS- AD model. Shifts in Aggregate Demand in the AS-AD Model The primary cause of shifts in the economy is aggregate demand. Recall that aggregate demand can be affected by consumers both domestic and foreign, the Fed, and the government. For a
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