Aggregate Demand and Aggregate Supply

Aggregate demand and supply Aggregate demand and supply analysis

Aggregate demand and aggregate supply AD AS Price level Pe O National output

Aggregate demand and aggregate supply AS Price level Pe b a P2 AD O National output

Aggregate demand and supply The New Classical Approach

New classical version of aggregate supply Price level O National output

New classical version of aggregate supply AD2 AD1 AS Price level P2 P1 O Y National output

Aggregate demand and supply The Extreme Keynesian Approach

Extreme Keynesian version of aggregate supply AS Price level P YF O National output

Extreme Keynesian version of aggregate supply AD2 AD4 AD1 AD3 AS P4 Price level P Y1 Y2 O YF National output

Aggregate demand and supply A typical short-run AS curve

A typical short-run aggregate supply curve AS Price level O National output

A typical short-run aggregate supply curve AD4 AS AD3 AD2 Price level AD1 O Y1 Y2 Y3 Y4 YP National output

Short-run response of a profit-maximising firm to a rise in demand £ MC P1 Q1 AR1 Q MR1

Short-run response of a profit-maximising firm to a rise in demand £ MR2 MC P1 AR2 AR1 Q1 Q MR1

Short-run response of a profit-maximising firm to a rise in demand £ MC P2 Q2 P1 AR2 AR1 Q1 MR2 Q MR1

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 AD1 SRAS1 (expected price level = P1) Price level P1 a O Q1 National output

The long-run aggregate supply curve when firms are interdependent AD2 SRAS2 (expected price level = P3 ) SRAS1 (expected price level = P1) c P3 Price level P2 b P1 a AD1 O Q1 Q2 National output

The long-run aggregate supply curve when firms are interdependent LRAS SRAS2 (expected price level = P3 ) SRAS1 (expected price level = P1) c P3 Price level P2 b P1 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 AS1 (short run) Price level a AD1 National output

Effect of investment on the long-run AS curve AS1 (short run) AS2 (short run) AS (long run) b d Price level a AD2 AD1 National output