Economics (AS)·Aggregate Demand & Aggregate Supply · NSSCAS 4.2
AD & AS: AD = C + I + G + (X − M)
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So far we have studied single markets — one good, one demand curve, one supply curve. Now we step back and add every market in the country together, to get aggregate demand and aggregate supply. This is the central model of macroeconomics: it shows how the total demand for output and the total supply of output interact to fix the price level, the level of real output, and, with it, employment. You will write out the identity AD = C + I + G + (X − M), define each component, draw the AD×AS diagram in full, and learn — for both curves — the vital difference between a movement along and a shift.
What you'll learn in this lesson
By the end you should be able to (NSSCAS Economics (AS) 4.2):
- Illustrate the shape and determinants of AD and AS curves; AD = C + I + G + (X – M)
- Describe the distinction between a movement along and a shift in AD and AS
- Analyse the interaction of AD and AS and the determination of the level of output, prices and employment
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