1.4 The interaction of aggregate demand and supply

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Cards (10)

  • Macroeconomic equilibrium:
    The point where the quantity of aggregate demand equals the quantity of aggregate supply. Planned output and demand are in balance
  • The effects of changes in AD on SR macroeconomic equilibrium:
    Changes in any component of AD causes a shift in AD curve.
    When AD increases (ceteris paribus) : the price level rises; real GDP rises
    When AD decreases (ceteris paribus): the price level falls; real GDP falls
  • Diagram to show the effects of increasing AD on SR macroeconomic equilibrium
  • The effects of changes in AS on SR macroeconomic equilibrium
    Changes that affect short run AS cause the SRAS curve to shift:
    When SRAS increases (ceteris paribus): the price level falls; real GDP increases
    When SRAS decreases (ceteris paribus): the price level rises; real GDP falls.
  • Diagram to illustrate the effects of increasing AS on SR macroeconomic equilibrium.
  • Effects of changes in AD on long run neoclassical macroeconomic equilibrium:
    When AD increases, assuming no change in long run AS: the price level increases; there is no change in real GDP.
    When AD decreases, assuming no change in long run AS: the price level increases; there is no change in real GDP.
  • Diagram to illustrate the effects of changes in AD on long run neoclassical macroeconomic equilibrium.
  • Effects of changes in LRAS on long run neoclassical macroeconomic equilibrium:
    Changes that affect LRAS cause the LRAS curve to shift. When LRAS increases, assuming no change in SR aggregate supply: the price level decreases; real GDP increases.
    If LRAS decreases, assuming no change in AD: the price level increases; real GDP increases.
  • Effects of changes in LRAS on long run neoclassical macroeconomic equilibrium:
    Changes that affect LRAS cause the LRAS curve to shift. When LRAS increases, assuming no change in SR aggregate supply: the price level decreases; real GDP increases.
    If LRAS decreases, assuming no change in AD: the price level increases; real GDP increases.
  • Diagram showing the effects of changes in LRAS on long run Keynesian macroeconomic equilibrium.