Chapter 13.1 Using the AD-AS Model

The position of the SRAS curve depends on:

expected rate of inflation

A decrease in the growth rate of the money supply causes a short-run departure from the long-run equilibrium because:

prices and wages are sticky

The AD curve is:

the combination of inflation rates and real growth rates that add up to a constant amount.

If the AD curve shifts to the left as a result of a decrease in the money supply growth rate:

the economy will temporarily depart from its long-run growth rate

The vertical axis in the AD-AS model shows:

the economy's inflation rate (π)

The horizontal axis in the AD-AS model shows:

the economy's real GDP growth rate

The AD curve will shift when there is a change in:

the money growth rate or the velocity growth rate

The combination of inflation and real growth shown by the AD curve give:

the same level of nominal GDP growth

The economy's normal, long-run growth rate is shown in the AD-AS model as:

the vertical LRAS curve

Economic models like the AD-AS model tell us:

what to expect if we know what is happening