Chapter 11

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The aggregate demand/Aggregate suplly AD/as MODEL

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4 Terms

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Aggregate Demand/Aggregate Supply (AD/AS) Model

Model that shows the relationship between the total supply and total demand for all goods and services in an economy

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Neoclassical zone (Top point of SRAS)

Economy at or near potential GDP. Unemployment is low(Natural state) Increase in AD leads to high inflation but no increase in GDP.

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Say’s law applies to what zone

Neoclassical zone, supply is fixed at its potential and demand just determines the price level

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Intermediate zone (Upward-sloping part in middle)

realistic zone for healthy, growing economy. Increase in AD causes both higher GDP and higher price level (Inflation)