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Aggregate Demand and Aggregate Supply
Murphy, Daniel Technical Note GEM-0127 / Published September 8, 2014 / 8 pages.
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Product Overview

This note extends the IS/LM model to incorporate changes in the aggregate price level and to permit output to be determined by aggregate supply and demand. The note introduces the concept of the full employment level of output, provides microfoundations that underpin the aggregate supply curve, and discusses the effects of fiscal and monetary policy when the economy is below and above the fully employment level of output. The note concludes by reviewing the exogenous components of the IS/LM-AD/AS model.


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  • Overview

    This note extends the IS/LM model to incorporate changes in the aggregate price level and to permit output to be determined by aggregate supply and demand. The note introduces the concept of the full employment level of output, provides microfoundations that underpin the aggregate supply curve, and discusses the effects of fiscal and monetary policy when the economy is below and above the fully employment level of output. The note concludes by reviewing the exogenous components of the IS/LM-AD/AS model.

  • Learning Objectives