increase in AD- classical approach

• What was the initial equilibrium level of output?

  AP1Y1
• What happens when one component of AD increases?

  AD increases from AD1 to AD2
• What is the effect of an increase in AD on average prices?

  Average prices rise to AP2
• What is the new real level of output after the increase in AD?

  It increases to Y2
• Where is the new short-run equilibrium located?

  At AP2Y2
• What are the effects of an increase in aggregate demand (AD)?

  • AD shifts from AD1 to AD2
  • Average prices rise to AP2
  • Real output increases to Y2
  • New short-run equilibrium is at AP2Y2
• classical approach increase in A.D