1. Aggregate Demand and
Aggregate Supply

2. Aggregate demand and supply
Aggregate demand and supply analysis

3. Aggregate demand and aggregate supplyAD AS
Price level Pe O
National output

4. Aggregate demand and aggregate supplyAS
Price level Pe b a P2 AD O
National output

5. Aggregate demand and supply
The New Classical Approach

6. New classical version of aggregate supply
Price level O
National output

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

8. Aggregate demand and supply
The Extreme Keynesian Approach

9. Extreme Keynesian version of aggregate supplyAS
Price level P YF O
National output

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

11. Aggregate demand and supply
A typical short-run AS curve

12. A typical short-run aggregate supply curveAS
Price level O
National output

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

14. Short-run response of a profit-maximising firm to a rise in demandMC P1 Q1
AR1 Q
MR1

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

16. Short-run response of a profit-maximising firm to a rise in demandMC P2 Q2 P1
AR2
AR1 Q1
MR2 Q
MR1

17. Aggregate demand and supply
The New Classical approach
Effect on the long-run AS curve

18. The long-run aggregate supply curve when firms are interdependent
AD1
SRAS1
(expected price level = P1)
Price level P1 a O Q1
National output

19. 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

20. 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

21. Aggregate demand and supply
The Keynesian Approach
Effect of investment on the long-run AS curve

22. Effect of investment on the long-run AS curve
AS1 (short run)
Price level a
AD1
National output

23. 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