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Chapter 11: 20 (page 291)

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

Short Answer

Expert verified

Real GDP and price level are labeled horizontally and vertically on the AD and AS curves, respectively.

Step by step solution

01

Concept introduction

Aggregate demand curve depicts the link between the current price level in the economy and GDP when both the goods and money markets are in equilibrium.

Aggregate supply represents the total output of goods and services that an economy could deliver at a particular price level.

02

Explanation


The vertical axis represents price level, and the horizontal axis represents GDP, as seen in the diagram. The equilibrium level of price and output is determined by the intersection of aggregate demand and aggregate supply.

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Most popular questions from this chapter

Briefly explain the reason for the near-horizontal shape of the SRAS curve on its far left.

On a microeconomic demand curve, a decrease in price causes an increase in quantity demanded because the product in question is now relatively less expensive than substitute products. Explain why aggregate demand does not increase for the same reason in response to a decrease in the aggregate price level. In other words, what causes total spending to increase if it is not because goods are now cheaper?

Does Say’s law apply more accurately in the long run or the short run? What about Keynes’ law?

Do neoclassical economists believe in Keynes’ law or Say’s law?

How is cyclical unemployment illustrated in an AD/AS model?
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