Question

Hello can someone please explain the AS AD curve step by step to me? Thank you

Answer 1

Aggreagte Supply (AS) Curve

• During a given period, the total supply supply of goods and servies which is produced within a economy at a given price level is the Aggregate supply.
• Aggregate supply is also known as the total output.
• Aggreage supply (AS) curve is used to show the same.
• This curve explains the relationship between the price and the quantity of output.
• It is seen that normally there is a positive relationship between aggregate supply and the price level.
• Various factors cause the shifts in the AS curve which includes changes in the size and quality of labor, increase in production cost, innovations in technology, increase in wages, changes in taxes and subsidies and inflation.
• These factors lead to positive or negative changes.
• Higher prices and demand affects the AS curve in short run.
• Whereas, in long run AS curve is not affected by prices or demand.

Aggregate Demand (AD) Curve

• An economic measurement of the sum of all final goods and services produced in and economy is the Aggregate demand.
• It is expressed as the total amount of money exchanged for those goods and services.
• Aggregate demand represents the total output at a given price level and does not necessarily show the quality or standard of living as it is measured by the market value.
• Aggregate demand describes the total demand in an economy for all goods and services at any given price level in a given period.
• It is a macroeconomic term.
• The aggregate demand and the GDP should increase and decrease together.
• The factors that affect the aggregate demand curve are the changes in real interest rates, currency exchange rates, wealth, inflation etc.