
Establishment Of Equilibrium In The Ad/As Model And The Determination Of The Level Of Real Output, The Price Level And Employment
Economics notes
Establishment Of Equilibrium In The Ad/As Model And The Determination Of The Level Of Real Output, The Price Level And Employment
➡️ A movement along the aggregate demand (AD) and aggregate supply (AS) curves occurs when the price level changes, but the quantity of goods and services demanded or supplied remains the same.
➡️ A shift in the AD or AS curves occurs when the quantity of goods and services demanded or supplied changes, but the price level remains the same.
➡️ Shifts in the AD and AS curves are caused by changes in factors such as consumer confidence, government spending, taxes, and the money supply.
How does the establishment of equilibrium in the AD/AS model determine the level of real output, the price level and employment?
The establishment of equilibrium in the AD/AS model is determined by the intersection of the aggregate demand (AD) and aggregate supply (AS) curves. At this point, the level of real output, the price level and employment are determined by the intersection of the two curves. The level of real output is determined by the amount of goods and services produced, the price level is determined by the cost of goods and services, and employment is determined by the number of people employed in the production of goods and services.
What factors influence the aggregate demand and aggregate supply curves?
The aggregate demand and aggregate supply curves are influenced by a variety of factors, including the level of consumer spending, the level of government spending, the level of investment, the level of taxes, the level of exports, the level of imports, the level of technology, and the level of wages.
How does the AD/AS model help to explain the business cycle?
The AD/AS model helps to explain the business cycle by showing how changes in aggregate demand and aggregate supply can cause fluctuations in the level of real output, the price level and employment. When aggregate demand increases, the level of real output, the price level and employment will also increase. Conversely, when aggregate demand decreases, the level of real output, the price level and employment will also decrease. This helps to explain the cyclical nature of the economy.