Figure 2: Keynes's AD-AS Model The Keynesian AS curve Price Level Up to real output level Yf increases in AD have no effect on the price level. Increases in AD beyond Yf cause an increase in the price level but no increase in real output AS P1 P AD2 AD AD1 Ye Yf National income (real GDP) Copyright: www.economicsonline.co.uk Economics Online. (n.d.). Aggregate supply. Retrieved from http://www.economicsonline.co.uk/Managing the economy/Aggregate+supply.html
Attached: Figure 2: Keynes’s AD-AS Model
Question 1
Changes in which factors could cause aggregate demand to shift from AD to AD1? What could happen to the
Question 2
The Keynesian AD-AS model describes what happens with price levels when aggregate demand increases. Could you find any evidence from the last ten-fifteen years that might support AD-AS model descriptions of demand-pull inflation, cost-push inflation, and recession? For example, you could find data on the GDP’s of any two countries from 2000 to 2017 to support your findings.
In
- What happens in the immediate short-run when AD rises from AD to AD2 to the price level and output?
- What happens in the short-run when AD falls from AD to AD1 to the price level and output?
- What will happen in each case in the long-run?
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