1. AS/AD Model: from the short run to the long run Or… the economic shifty-shift
AP/IB Economics

2. Short-run: factor prices are sticky
Long-run: factor prices are flexible

3. AS/AD Long Run Analysis
SRAS
LRAS AD Y
rGDP PL
AD1
Recessionary gap

4. AS/AD Long Run Analysis
SRAS
LRAS AD Y
rGDP PL
AD1
Inflationary gap

7. Try a few…
The government increases defense spending by 10 percent a year over a five-year period.
OPEC cuts oil production by 30%, and the world price of oil rises by 40%.
The government increases spending on education, housing and basic services for low-income people. No increase in taxes accompanies the program.

8. The government increases defense spending by 10 percent a year over a five-year period.
SRAS
LRAS AD Y
rGDP PL
SRAS1
AD1

9. OPEC cuts oil production by 30%, and the world price of oil rises by 40%.
SRAS
LRAS AD Y
rGDP PL
SRAS1
LRAS1

10. The government increases spending on education, housing and basic services for low-income people. No increase in taxes accompanies the program.
SRAS
LRAS AD Y
rGDP PL
SRAS1
AD1