Question

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What is the AS? Distinguish between short run and long run AS curves. How does it differ from the PPC? Look at what is measured on either axis? How would you express economic growth using either of the curves?

Define AD. What is measured on each axis? What changes need to take place for you to move along the AD curve? What happens to the economy when the price level changes?

Answer 1

*AS---AS stands for aggregate supply .it is a macro economics term which measures the money value of goods and services that all the producers are willing to supply in an economy at a given period of time .AS=C+S . ( C stands for consumption and s,stands for saving).. * Distinguish between long run and short run AS curves---. The long run AS curve is assumed to be vertical line along y a xes as it dies not change when the general price level changes........On the other hand,short run AS curve is assumed to be upward sloping as it tends to change with the change in general price level.Generally it is a 45° line from origin . * How AS differs from PPC---- . First,production possibility curve(pPC) is a term of micro economice while AS is a macro economics term.......,secondly PPC is a tool to explain central problems of an economy.In fact,PPC is a graphical presentation of all the possible combinations of two goods that can be produced with the given resources and technology. *What is measured on either axis----- . In case of AS- -along x axis,income/ output/ employment and along y axis, consumption and saving................................ In case of PPC,along x axis,commodity A and along y axis commodity B *Expressing economic growth on the PpC------ . Economic growth can be well expressed in PPC as ,we know ppc stands for a concave curve which shows effective utilisation of resources ,so with thr growth in resources ,it will shift towards right side. * AD-- Aggregate demard curve is a macro economic term which refers to the total value of final goods and serviced which all the sectors of an economy plan to buy at a given level of income during a particular period of time.AD= C+I. *Along x axis income / output/ employment is taken and along y axis, aggregate expenditure is taken.this curve never starts from origin. * If economy need to change along the AD curve ,there must be a change in either of its components i.e consumtion and investment .if either consumption or investment is increased ,AD tends to shifts rightward ,on the other hand ,when either consumption or investment decreases,AD shifts leftward . * Effect of price level changes on the economy---- price level changes means,increase or decrease in the purchasing power of money over a period of time.with the increase in price level inflation occurs ,the average price of all goods and services increases which lowers purchasing power of money and impacts cost of living, borrowing and every facet of the economy .on the other hand ,with the fall in the price level, the purchasing power of money increases and demand for goods and services increases and finally it tends to deflation........hope it will help u...