Aggregate Demand and Supply
Overview:
Aggregate Demand and Supply. In this section we’re learning about one of the most important macroeconomic models. Often referred to as the workhorse of macroeconomics. Where by the aggregate demand and aggregate supply model (AD-AS) shows us the relationship between the price level and real GDP. Also When first learning about the AD-AS model it can seem abstract and difficult to apply to real world situation.
However, once we understand how the model is put together and what it conveys. it can actually be applie-d to almost all macroeconomic situations. As such, the AD-AS model allows us to evaluate various macroeconomic conditions that a country might be experiencing. and to evaluate how government policies, demographics, technology, and labor markets, to name to a few, impact the economy.
To help us learn the AD-AS model so that we can better apply it to various situations. Where this discussion will focus on understanding the model and how to interpret it. Therefore, we will compare and contrast four different states of the model. this is by Positive demand shock, negative demand shock, positive supply shock, negative supply shock. I have included an image of all four types below for your reference.
Analysis
Choose either a positive demand shock or negative demand shock and explain (please identify which shock you chose). What is the impact to the price level as a result of the shock? Also What is the impact to real GDP as a result of the shock and how do you know (recessionary gap or expansionary/inflationary gap)? What is the impact to unemployment as a result of the shock? Review the section of the textbook under the Aggregate Demand and Aggregate Supply. chapter, Equilibrium Dynamics, that discusses the short-run to the long-run. In your own words, describe the process by which the economy moves from the short-run to the long-run. And for the demand shock that you chose above (1 – paragraph).
Choose either a positive supply shock or negative supply shock and explain (please identify which shock you chose): What is the impact to the price level as a result of the shock? What is the impact to real GDP as a result of the shock (recessionary gap or expansionary/inflationary gap)? What is the impact to unemployment as a result of the shock? Review the section of the textbook under the Aggregate Demand and Aggregate Supply. Also chapter, Equilibrium Dynamics, that discusses the short-run to the long-run. In your own words, describe the process by which the economy moves from the short-run to the long-run for the supply shock that you chose above (1 – paragraph).
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