MacroEcon Final

Use the IS-LM curve to show why Aggregate Demand slopes downward

What causes the aggregate demand curve to shift?

What changes the SRAS for a firm?

When output is below Ȳ, so prices gradually fall (or after a favorable supply shock)

Y < Ȳ means weak demand, so firms cut prices and SRAS drifts down until Y = Ȳ. Y > Ȳ does the opposite.

whats on the x and y axis of ad

y-axis is the price level (P) and the x-axis is income or output (Y).

What's the difference between moving ALONG the AD curve and SHIFTING it?

Changes in P move you along AD; changes in anything else that affects IS–LM shift AD

P is on the AD graph's axis, so a change in P is a movement along the curve. Monetary policy, fiscal policy, and IS/LM shocks shift the curve itself.