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Aggregate Demand and Aggregate Supply
Murphy, Daniel Technical Note GEM-0127 / Published September 8, 2014 / 22 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 full-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 full-employment level of output. The note concludes by reviewing the exogenous components of the IS/LM-AD/AS model.

  • Learning Objectives