AD–AS MODEL & ECONOMIC GROWTH — REVISION SHEET (AQA A Level)
1. Aggregate Demand (AD)
AD = C + I + G + (X − M)
Downward sloping because of wealth effect, interest rate effect, and international competitiveness.
Right shift: higher C, I, G, X; lower interest rates; weaker exchange rate.
2. Short-Run Aggregate Supply (SRAS)
Upward sloping. Shifts due to changes in production costs.
Right shift: lower wages, cheaper raw materials, higher productivity.
Left shift: cost-push shocks (e.g., oil).
3. Long-Run Aggregate Supply (LRAS)
Vertical in the neo-classical view. Shows productive capacity.
Right shift = potential growth from investment, education, tech, immigration.
4. Economic Growth
Actual growth: movement to higher output from AD/SRAS shifts.
Potential growth: LRAS shifts right.
5. Diagram Summary
AD ↑ → higher PL, higher Y
SRAS ↑ → lower PL, higher Y
LRAS ↑ → higher potential Y, lower long-run inflation.
AD–AS Diagram:
LRAS Diagram: