Module 19
Equilibrium in
the Aggregate DemandAggregate Supply Model
KRUGMAN'S
MACROECONOMICS for AP*
Margaret Ray and David Anderson
What you will learn
in this Module:
• The difference between short-run and
long-run macroeconomic equilibrium
• The causes and effects of demand shocks
and supply shocks
• How to determine if an economy is
experiencing a recessionary gap or an
inflationary gap and how to calculate the
size of the output gaps
The AD-AS Model
• Model used to analyze
economic fluctuations
Shifts of the Aggregate Demand
Curve
• ∆C, ∆I, ∆G, ∆X - ∆M
•∆Expectations
•∆Wealth
•∆Existing Stock of
Capital
•∆Fiscal Policy
•∆Monetary Policy
Shifts of the Short-Run
Aggregate Supply Curve
• ∆ Commodity Prices
• ∆ Nominal Wages
• ∆ Productivity
Short-Run Macroeconomic
Equilibrium
• Short-Run
Macroeconomic
Equilibrium
• Price Level
• Aggregate Output
• Shortage/Surplus
• Relative Declines
Shifts of Aggregate Demand:
Short-Run Effects
• Demand Shock
• Negative Demand
Shock
• Positive Demand
Shock
Shifts of the SRAS Curve
• Supply Shock
• Negative Supply
Shock
• Stagflation
• Positive Supply Shock
Long-Run Macroeconomic
Equilibrium
• Long-Run
Macroeconomic
Equilibrium
• Recessionary Gap
• Self-Correction
• Inflationary Gap
• Self-Correction
• Output Gap