Draw the AS/AD model to help you answer the following questions:

1. What does the AS/AD model determine (what information does it give us)?

2. What does the AS curve tell you?

3. Why is the AD curve downward sloping

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Lelia LubowitzLv2

11 Jul 2019

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Related questions

The aggregate supply (AS) and aggregate demand (AD) model describe the condition of the overall economy; this model is used to predict changes in the price level and output from external shocks to the economy and various government policies.

Please describe what the aggregate supply and aggregate demand curves represent; explain what accounts for their shape (i.e., downward sloping AD and upward sloping AD); and give examples of at least two factors each that might result in a shift in AD and AS.

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The AS/AD model is an excellent way to understand how specific policies and actions affect output and prices in an economy. Think about these questions as you discuss this topic:

What is the aggregate demand (AD) curve? What are the components of AD? What factors can shift the AD curve?

What is the difference between the long-run aggregate supply curve and the short-run aggregate supply curve?

What is MPC? How does the spending multiplier work?

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Determine the effect on either the aggregate demand curve (is it a rightward or a leftward shift?), the aggregate short-term supply curve, and the long-term aggregate supply curve (does the upward sloping portions of the SAS curve shift left or right, or does the vertical portion of the LAS curve shift to the right or the left?). Also determine the effect on the price level, the real output level, and employment/unemployment. Explain and express this graphically using the AS/AD macro model.

In the summer of 1953, the Korean War ended and government expenditures decreased. In terms of the AS-AD model, this change should have shifted the AD curve to the left. A cut in government spending reduces economic activity and shifts the AD curve to the left.