Interest rate Expectation Preference of household

Short Run AS
Factor prices Expectation

Factor Prices
Wage Tax Imports

Interest rate Expectation Cost and effiency of equipment Government policy Changes in technology Other sources of finance Political stability and good infrastructures Education and good labourmanagement relationship


Aggregate Demand - Aggregate Supply


Long Run AS
Availability of resources Efficiency of factors of production

Capital Human

Equilibrium National Income
National income is at equilibrium when there is no tendency for it to change, regardless of whether the economy is at full employment. It is when the plans of all economic agents in the economy are fulfilled and consistent with each other. When AS>AD, there is unplanned inventory accumulation causing downward pressure on GPL, leading to a fall in output. When AD>AS, there is unplanned inventory depletion causing upward pressure on GPL, leading to a rise in output.

Government expenditure
Political decision

Net export
Income Prices (Inflation) Exchange rate Government policy (Protectionism)

Fiscal Policy (Expansionary/Contractionary)
The deliberate use of government spending and tax policies to stimulate or contract economic activities to achieve certain With Supply-Side Intent macroeconomic objectives.

Monetary Policy (Expansionary / Contractionary)
Involves government changes in the interest rates or exchange rates in order to achieve certain macroeconomic objectives.

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