Aggregate Demand (AD) and Short Run Aggregate Supply (SRAS)

Aggregate Demand

According to the AD curve the relationship between the price level and real GDP is inverse.

The Ad curve is sloping down due to the Real Balance and Interest Rate Effects.

Examples of shifts in AD

Situation	Changes in AD	New AD Curve
Congress Cuts Taxes	Increase	Right
Autonomous investment spending decreases	Decrease	Left
Government spending to increase next fiscal year; president promises no increase in taxes	Increase	Right
Survey shows consumer confidence jumps	Increase	Right
Stock market collapses; investors lose billions	Decrease	Left
Supply rises for fourth straight year	No Change	Same Line
President cuts defense spending by 20 percent; no increase in domestic spending	Decrease	Left

Short Run Aggregate Supply

When the economy is in recession the economy has a horizontal SRAS curve.

When GDP is at a level with unemployment at the full employment level the economy would have a vertical SRAS curve.

When resources are getting closer to full employment levels, this creates upward pressure on prices, resulting in an economy having a positively sloped SRAS curve.