Unit 3: The AS & AD Model

The AS and AD Model:

the equilibrium of AS and AD determines current output (RGDP) and Price level (PL).

Full Employment: A full employment exists where AD intersects SRAS and LRAS at same point.

Recessionary Gap: A recessionary gap exists when equilibrium occurs below full employment output.

Inflationary Gap: An inflationary gap exists when equilibrium occurs beyond full employment output.

Changes in AD:

(consumption, Gross Private Domestic Product, Government Spending, Net Export)

Increase in AD:

Increase in AS: 

Changes in SRAS: 

Increase in SRAS:

Decrease in SRAS:

LRAS:

•  It deals with potential output pr we using all resources efficiently.

LRAS Shifts Left or Right:

• increase in technology
• capital resources
• growth
• entrepreneurship
• resources available