AD-AS Model.

The AD-AS or Aggregate Demand-Aggregate Supply model is a macroeconomic model that explains price level and output through the relationship of aggregate demand and aggregate supply. It is based on the theory of John Maynard Keynes presented in his work The General Theory of Employment, Interest, and Money. It is one of the primary simplified representations in the modern field of macroeconomics, and is used by a broad array of economists, from libertarian, Monetarist supporters of laissez-faire, such as Milton Friedman to Post-Keynesian supporters of economic interventionism, such as Joan Robinson.

The conventional "aggregate supply and demand" model is, in actuality, a Keynesian visualization that has come to be a widely accepted image of the theory. The Classical supply and demand model, which is largely based on Say's Law, or that supply creates its own demand, depicts the aggregate supply curve as being vertical at all times (not just in the long-run).

The AD/AS model is used to illustrate the Keynesian model of the business cycle. Movements of the two curves can be used to predict the effects that various exogenous events will have on two variables: real GDP and the price level. Furthermore, the model can be incorporated as a component in any of a variety of dynamic models (models of how variables like the price level and others evolve over time). The AD-AS model can be related to the Phillips curve model of wage or price inflation and unemployment.

The AD curve is defined by the IS-LM equilibrium income at different potential price levels. The Aggregate demand curve AD, which is downward sloping, is derived from the IS – LM model. It shows the combinations of the price level and level of the output at which the goods and assets markets are simultaneously in equilibrium. The above figure showing IS and LM curves, where LM curve shifts downward to the right to LM’ and thus shifting the new equilibrium to E’ where both goods and money market gets cleared. Now, the new output level Y’ correspond to the lower price level P’. Thus a reduction in price, which is shown in the figure, leads to an increase in the equilibrium and spending. The equation for the AD curve in general terms is:

where Y is real GDP, M is the nominal money supply, P is the price level, G is real government spending, T is an exogenous component of real taxes levied, and Z1 is a vector of other exogenous variables that affect the location of the IS curve (exogenous influences on any component of spending) or the LM curve (exogenous influences on money demand). The real money supply has a positive effect on aggregate demand, as does real government spending (meaning that when the independent variable changes in one direction, aggregate demand changes in the same direction); the exogenous component of taxes has a negative effect on it. Слева график IS-LM, справа AD-AS:

14. Consumption, savings and investment. “Keynesian Cross”.

Смотри Consumption в вопросе 12 пункт Expenditure approach.