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  • Ed22 Inflation

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    mithila debnath
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    The document discusses using the aggregate supply (AS) and aggregate demand (AD) model to analyze macroeconomic issues like unemployment, inflation, and economic growth. It can show how a contraction in aggregate demand for final goods and services shifts the AS/AD curve and affects the labor market. Specifically, a leftward shift from AD1 to AD2 in Diagram 1 causes the equilibrium to move from point A to B, illustrating demand-pull inflation. Cost-push inflation is shown by the upward shift from AS1 to AS2, moving the equilibrium from A to B. Diagram 2 depicts how the AS/AD framework can also be applied to analyze the macroeconomic labor market.

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    The document discusses using the aggregate supply (AS) and aggregate demand (AD) model to analyze macroeconomic issues like unemployment, inflation, and economic growth. It can show how a contraction in aggregate demand for final goods and services shifts the AS/AD curve and affects the labor market. Specifically, a leftward shift from AD1 to AD2 in Diagram 1 causes the equilibrium to move from point A to B, illustrating demand-pull inflation. Cost-push inflation is shown by the upward shift from AS1 to AS2, moving the equilibrium from A to B. Diagram 2 depicts how the AS/AD framework can also be applied to analyze the macroeconomic labor market.

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    7 views1 page

    Ed22 Inflation

    Uploaded by

    mithila debnath
    The document discusses using the aggregate supply (AS) and aggregate demand (AD) model to analyze macroeconomic issues like unemployment, inflation, and economic growth. It can show how a contraction in aggregate demand for final goods and services shifts the AS/AD curve and affects the labor market. Specifically, a leftward shift from AD1 to AD2 in Diagram 1 causes the equilibrium to move from point A to B, illustrating demand-pull inflation. Cost-push inflation is shown by the upward shift from AS1 to AS2, moving the equilibrium from A to B. Diagram 2 depicts how the AS/AD framework can also be applied to analyze the macroeconomic labor market.

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     AS/AD shows key macroeconomic issues of unemployment, inflation and growth. Inflation is recorded on the ED 22
    Y axis while growth and employment are recorded on the X axis. See webnote ED 18 for an analysis. Unemployment
     Use the diagram also to for a labour market to show how a contraction in AD for final goods and services
    affects the labour market by shifting to point A or C in diagram 1.

    Syllabus Reference 2.3: Inflation

    Demand Pull inflation is


    evident as AD shifts from ad1
    Diagram 1: AS/AD for PL As1 to ad2 and equilibrium shifts
    Ad1
    Final goods and services Ad2 from A to B. Increase in G or
    in a macroeconomy As2 I would be prime reasons for
    an increase in the price level.
    Wage A Cost push inflation is evident
    Rate
    B
    from C to B when firms face
    increasing costs such as
    higher wage costs or more
    expensive input costs caused
    A by rising oil prices for
    C example.

    In diagram 2 you can use the


    AS/AD to show a
    macroeconomic labour
    market. Note that it behaves
    in the same way as the
    AS/AD for final goods and
    services.

    0 qA qB qC Q Labour

    1
    Page 1 of 1

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