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Math Help - AS/AD model

  1. #1
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    AS/AD model

    Hello everyone,

    Could someone please explain the AS/AD model to me with regard to macroeconomics? Could you please give me some examples or recomend a good website to me that has a lot of examples?

    For example, to show the effect of a stock market crash on the real output and the price level, the AD would shift to the left due to a distribution of income, and, as a result, the price level and the real output would both decrease, right?

    If a policy is created to help the economy, it would shift the AD curve to the right and the real output would increase as well as the price level, right?

    Thank you very much
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  2. #2
    Ond
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    Try the book "Macroeconomics" by Blanchard, there you can read about the IS-LM and AS-AD models.

    Regards.
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  3. #3
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    you are quite right in both examples, but the government can only make the AD curve move to the right with its fiscal policies and in the long run unemployment is returned to its natural rate and during these years when inflation is high, unemployment is low.

    AD/AS model is the most simplest economics model, it's just as what you see on the model (what you say), there is a bit different in the long run model and short run model, the AS curve is not a straight line in the short run
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  4. #4
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    Thank you very much

    As far as the explanation in the long run, do you know if it is just that the output returns to the potential output?

    Also, do you know if the aggregate demand is always a linear equation or is it sometimes a curve?

    Thank you
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  5. #5
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    Quote Originally Posted by Chocolatelover2 View Post
    Thank you very much

    As far as the explanation in the long run, do you know if it is just that the output returns to the potential output?

    Also, do you know if the aggregate demand is always a linear equation or is it sometimes a curve?

    Thank you
    regarding the high potential output, as I said in the previous post, just imagine the AS curve is a lied upward 15 degree at the beginning point to certain point in the middle, at the end of the curve (in the long run) it changes dramatically to around 90 degree (quite straight upward), so you will see the potential output does not actually matter if you have a high productivity, but if you consider it in a smaller scale, it has a very strong affect every time the demand curve moves up/down

    the demand curve can be a straight line or a curve, it depends on the market

    have a look at this http://people.uleth.ca/~richard.mueller/MacroChap09.pdf

    hope this helps
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