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Chapter 24: Problem 20

What is on the horizontal axis of the AD/AS diagram? What is on the vertical axis?

Short Answer

Expert verified
The horizontal axis of the AD/AS diagram represents the real GDP (Real Output), while the vertical axis represents the Price Level.

Step by step solution

01

Identification of Horizontal Axis

The horizontal axis of the AD/AS diagram represents the real output or the real GDP (Gross Domestic Product) of an economy. Real GDP is the total value of all final goods and services produced in an economy adjusted for the changes in price level (i.e., inflation or deflation). It is a measure of an economy's overall output and is used to show the quantity of goods and services demanded and supplied in an economy.
02

Identification of Vertical Axis

The vertical axis of the AD/AS diagram represents the price level, which can be measured using an index such as the Consumer Price Index (CPI) or the GDP deflator. The price level is used as a representation of the overall inflation or deflation in an economy. A higher price level represents a higher average level of prices for goods and services in an economy, while a lower price level represents a lower average level of prices. In summary: - Horizontal Axis: Real GDP (Real Output) - Vertical Axis: Price Level

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Most popular questions from this chapter

Describe the mechanism by which demand creates its own supply.

If households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run?

What are the economic reasons why the AD curve slopes down?

Suppose Mexico, one of our largest trading partners and purchaser of a large quantity of our exports, goes into a recession. Use the AD/AS model to determine the likely impact on our equilibrium GDP and price level.

How would a dramatic increase in the value of the stock market shift the AD curve? What effect would the shift have on the equilibrium level of GDP and the price level?
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