Aggregate Demand-Aggregate Supply (AD/AS) Model

Definition

The AD/AS model is an economic framework used to analyze how changes in aggregate demand and aggregate supply affect overall price levels and real GDP. It shows the relationship between these factors and helps explain short-run fluctuations in the economy.

Related terms

Aggregate Demand (AD): This term refers to the total amount of goods and services demanded by households, businesses, government, and foreign buyers within an economy.

Aggregate Supply (AS): This term refers to the total amount of goods and services that producers are willing and able to supply at different price levels.

Equilibrium: This term refers to the point where aggregate demand and aggregate supply intersect in the AD/AS model, indicating a balance between desired spending and production.