AD / AS. model Recall from MCR, we had the simple demand and supply curves of good f service Price of Gun Ss pga (8) Demand curve of Gum ne Ceonsumer= side) Quantity of Gam (units) In MACROECONOMICS, we look the total demand and — Supply cof ALL goods / services in the econorny, pre AGGREGATE AGGREGATE DEMAND SuPPLY y ty total amount of total amount of supply os demanded in that an economy ts £ roducin the. economy Capable of producing * Note * Since AS accounts for the WHOLE economy , trings move a bit more Slowly. Adjustments cannot just happen. Imagine tne need for labour sudden ly increases, we | Cannot just Clone more Fully ~ grown, capa ble people. But, in the LONG-RUN , labour CAN adjustAGGREGATE SUPPLY For to this reason, we analyse the Aggregate Supply is Two curves. Supply Shor+ Run Aggregate. Supply Curve ~ CSRAS) SRAS Price Level Pe Ad, al GDP ee AGGREGATE DEMAND ADs c+ recall: Anything — that offects spending in the economy, will offect AD AD wilt crease. AD wilt Tneease. V income, profits income , rors LG Te T tax ¥ tox Vicansfer payments 4 deansfer payments L Amoney + Qmoney t Anterest rates Jinteest rates exchange rare apbreciak es tecnonge cote depreciotes. use eeonomiy, affected Pak Two TIME FRAMES Shor}-run and tong -tun. such that we have Leng- Run Aggregate 3 Supply Carve (L@As) 38 Laas < % AO, Ree) GOP Goreme as Oto) potential GDP Amount +G +(X-M) Vingrease ie ADL Venift to toe ANS 1 “i(AD, & ADT Price Level Real Gop, (output) decease in AD shif+ te the LAS} “1 (AD, & ADa) r Mecemcsiocsy Oe tenes 2E P93 ; 5 9 Example: Using tne gt AD~ As framework, Guusirateyatne effect of a @eereas®) in (Government Spending) on Rea Gop foutpat in the short — run. > iris G, tus te AD STEP Z 4 ees it increase or decrease VG implies AD will decrease Step 3 ohly weeds or is a diggram required "illustrate" — aad “explain” ADe Real GDP Coutput) i The above diagram cepresents the AD] AS model in thre SR A decrease in Cr will decrease the amount of income which decreases consumption Spending whicn decreases AD. Tllustrated by & leftward shift of Aggregate Demand Chrom ADs te AD). There wi be a decrease in the output level ( fyoan Yo to y) and Price Level Cfrom f, to A). a decrease in the