Aggregate Demand and Aggregate Supply
Aggregate demand and supply
Aggregate demand and supply analysis
Aggregate demand and aggregate supply
Price level
AS
Pe
AD O National output
Aggregate demand and aggregate supply
Price level
AS
Pe P2
b
a AD
O National output
Aggregate demand and supply
The New Classical Approach
New classical version of aggregate supply
Price level
AS
O
National output
New classical version of aggregate supply
Price level
AS
P2
P1
O
AD2 AD1 Y
National output
Aggregate demand and supply
The Extreme Keynesian Approach
Extreme Keynesian version of aggregate supply
Price level
AS
P
O
YF
National output
Extreme Keynesian version of aggregate supply
Price level
AS
P4
AD4 P
AD3 AD2
O
AD1 Y1
Y2
National output
YF
Aggregate demand and supply
A typical short-run AS curve
A typical short-run aggregate supply curve
Price level
AS
O
YP
National output
A typical short-run aggregate supply curve
Price level
AS
AD4
AD2
AD1 O
Y1
Y2
AD3
Y3
National output
Y4
YP
Short-run response of a profit-maximising firm to a rise in demand
£ MC
P1
AR1 Q1
MR1
Q
Short-run response of a profit-maximising firm to a rise in demand
£ MC
P1
AR2
AR1 Q1
MR2
MR1
Q
Short-run response of a profit-maximising firm to a rise in demand
£ MC
P2 P1
AR2
AR1 Q1 Q2
MR2
MR1
Q
Aggregate demand and supply
The New Classical approach Effect on the long-run AS curve
The long-run aggregate supply curve when firms are interdependent
SRAS1 Price level
(expected price level = P1)
P1
a
AD1 O
Q1 National output
The long-run aggregate supply curve when firms are interdependent SRAS2 (expected price level = P3 )
SRAS1 Price level
(expected price level = P1)
c
P3 P2 P1
b a
AD2 AD1 O
Q1 Q2 National output
The long-run aggregate supply curve when firms are interdependent LRAS SRAS2 (expected price level = P3 )
SRAS1 Price level
(expected price level = P1)
c
P3 P2 P1
b a
AD2 AD1 O
Qn Q2 National output
Aggregate demand and supply
The Keynesian Approach Effect of investment on the long-run AS curve
Effect of investment on the long-run AS curve
Price level
AS1 (short run)
a
AD1 National output
Effect of investment on the long-run AS curve
Price level
AS1 (short run) AS2 (short run) b
AS (long run) d
a
AD2 AD1 National output