Building a Model of Aggregate Demand and Aggregate Supply

Review Questions

What is on the horizontal axis of the AD/AS diagram? What is on the vertical axis?

What is the economic reason why the SRAS curve slopes up?

What are the components of the aggregate demand (AD) curve?

What are the economic reasons why the AD curve slopes down?

Briefly explain the reason for the near-horizontal shape of the SRAS curve on its far left.

Briefly explain the reason for the near-vertical shape of the SRAS curve on its far right.

What is potential GDP?