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Aggregate Demand & Aggregate Supply
AP Macroeconomics · National Income and Price Determination
⟲ Reset Long-Run Equilibrium
Learning Objectives
Identify the intersection of AD and SRAS as the short-run Price Level (PL) and Real GDP (Y).
Visualize an Inflationary Gap (Y > Yf).
Visualize a Recessionary Gap (Y < Yf).
Understand Long-Run Aggregate Supply (LRAS) as full employment.
Key Variables
AD:
C + I + G + Nx
SRAS:
Input prices, wages, productivity
LRAS:
Capital, land, labor, technology
Tags
Macroeconomics
AD/AS Model
Inflation
GDP
The Macroeconomic AD/AS Graph
State of the Economy
Long-Run Equilibrium
Current Output ($Y$)
$Y_f$ (Full Employment)
Price Level ($PL$)
$PL_e$ (Stable)
Apply Economic Shocks
E
No Shock (Long-Run Eq.)
Aggregate Demand (AD)
↑
Positive AD Shock (e.g. Govt Spending)
↓
Negative AD Shock (e.g. High Taxes)
Short-Run Aggregate Supply (SRAS)
↑
Positive SRAS Shock (e.g. Cheap Oil)
↓
Negative SRAS (Stagflation)
Quick Quiz
What uniquely occurs during a NEGATIVE SRAS shock (Stagflation)?
Prices rise while output/employment completely maxes out.
Prices continuously RISE (Inflation) while real GDP FALLS (Recession).
The Long-Run Aggregate Supply curve shifts.