AD-AS model

Module 19: Equilibrium in the Aggregate Demand-Aggregate Supply Model -The difference between short-run and long-run macroeconomic equilibrium -The causes and effects of demand shocks and supply shocks -How to determine if an economy is experiencing a recessionary gap or an inflationary gap and how to calculate the size of output gaps The AD?AS Model: the aggregate supply curve and the aggregate demand curve are used together to analyze economic fluctuations Price shock: dramatic fall in short-run aggregate supply Short-Run Macroeconomic Equilibrium: when the quantity of aggregate output supplied is equal to the quantity demanded Short-run equilibrium aggregate output: the quantity of aggregate output produced in the short-run macroeconomic equilibrium

?? Chapter 7: Supply and Demand: Changes in Equilibrium ? substitutes: if the price of good1 rises, the demand for good2 will increase if the price of good1 falls, the demand for good2 will decrease An increase in demand leads to a rise in both the equilibrium price and the equilibrium quantity. A decrease in demand leads to a fall in both the equilibrium price and the equilibrium quantity. Increase in demand: rightward shift of the demand curve market is no longer in equilibrium shortage: quantity demanded exceeds quantity supplied price rises increase in the quantity supplied upward movement along the supply curve new equilibrium When demand for a good or service increases, the equilibrium price and the equilibrium quantity of the