29.1 Aggregate Supply
MyEconLab Concept Video
The purpose of the aggregate supply–aggregate demand model is to explain how real GDP and the price level are determined. The model uses similar ideas to those that you encountered in Chapter 4 where you learned how the quantity and price are determined in a competitive market. But the aggregate supply–aggregate demand model (AS-AD model) isn’t just an application of the competitive market model. Some differences arise because the AS-AD model is a model of an imaginary market for the total of all the final goods and services that make up real GDP. The quantity in this “market” is real GDP and the price is the price level measured by the GDP price index.
The quantity of real GDP supplied is the total ...
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