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AS/AD model

Question #4 (a)Why was the AS/AD model developed, and what limitations of the S/D model did it overcome? (b) List a real world example that is not in the text that supports your response.

Fully discuss the theory underlying each model, and why the AS/AD model is the preferred way to measure the economy, or is it?

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AD-AS model is an economic model relating the price level and real production that is used to analyze business cycles, gross domestic product, unemployment, inflation, stabilization policies, and related macroeconomic phenomena. The AS-AD model, inspired by the standard market model, captures the interaction between aggregate demand (the buyers) and short-run and long-run aggregate supply (the sellers).

Aggregate demand is the total real expenditures on final goods and services produced in the domestic economy that buyers would willing and able to make at different price levels, during a given time period (usually a year). Aggregate demand, relates the ...

Solution Summary

AS/AD model is articulated.