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Chapter 24: Q 20. (page 601)

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

Short Answer

Expert verified

The vertical axis and horizontal axis show different things.

Step by step solution

01

Step 1. Definition

An AD/AS (aggregate demand/aggregate supply model) is a method of demonstrating national income calculation and price level changes.

02

Step 2. Explanation

AD/AS model represents GDP on the horizontal axis, while on the vertical axis it represents the price level. Where the AD and AS curve meets it reflects the real growth of the economy.

The price level is the price of all the goods and services only, here the intermediate goods and services will not be counted. Price level does not mean inflation rate it is different, because the price level is indexed numbers and the inflation rate is a percentage.

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Most popular questions from this chapter

Explain why the short-run aggregate supply curve might be fairly flat in the Keynesian zone of the SRAS curve. How might we tell if we are in the Keynesian zone of the AS?

Suppose concerns about the size of the federal budget deficit led the U.S. Congress to cut all funding for research and development for ten years. Assuming this has an impact on technology growth, what does the AD/AS model predict would be the likely effect on equilibrium GDP and the price level?

What are the components of the aggregate demand (AD) curve?

In the AD/AS model, what prevents the economy from achieving equilibrium at the potential output?

If Congress cuts taxes at the same time that businesses become more pessimistic about the economy, what is the combined effect on output, the price level, and employment using the AD/AS diagram?
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