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Q. AS-AD model with inflation?
When we have inflation, both AD curve and AS curve will be gliding. 'The glide rate' of the AD curve is given by ΠMwhereas it is ΠWthat applies to AS curve (where both rates are exogenous). Using AS-AD curves, we can figure out the equilibrium price P (and thus p) at any point in time and we can conclude all endogenous variables. For illustration, we realize that if ΠM = Πw, both curves glide at exactly the same rate. Y would then be unchanged and p will be equal to Πw.
Figure: Determination of Y and P in the AS-AD model with inflation
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1.the AD curve represents at the same time the demand for goods, money and labor in the economy 2.in the AS-AD model, higher competition among producers leads to a medium run equil
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