AS/AD Models

AS/AD models

• the equilibrium of AS and AD determines current output (GDPr) and the price level

-full employment equilibrium exist when AD intersects SRAS and LRAS at the same point

                                                 Two types of gaps

-Recessionary Gap

• exist when equilibrium occurs below full employment
  

  

-inflationary Gap

• exist when equilibrium occurs beyond full employment output
• 

Change in AD

C up, Ig up, G up,Xn up= AD -->, GDP Up, PL up, U ( unemployment) up, Pi up, Pi= inflation