Reference no: EM132860118

This week we are discussing how economy returns to equilibrium in response to changes in aggregate demand (AD) and aggregate supply (AS) in both the short run and long run.

What is the best way I can add to this post to provide more examples or explain more?

When it comes to aggregate demand, you have to consider what is being compared. You have the price level, and it works against real GDP. When the price level increases, the real GDP decreases, and when the price level decreases, the real GDP increases. Aggregate demand is only calculating using the final goods and services. Aggregate supply works together with aggregate demand, and it is the total amount of goods and services produced in an economy-related to a price level. Aggregate supply has both short runs and long runs. The thing about short runs is the slopes run upward, and the input prices are fixed. An example of the short-run is when oil companies buy oil contracts with the companies they sell oil to. It takes time for the price to change. Aggregate supply long run, the input prices are a lot more flexible than the market changes. When considering the slope, the line is vertical. It is originating from the full employment level of real GDP. When the price changes, companies layoff employees or adjust their spending to counter it with long runs.