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Q. Aggregate supply in AS-AD model?
In order to figure out all the variables in AS-AD model, we need one more equilibrium condition so that we can identify a unique point on AD curve as the unique equilibrium. This condition will come from production side and labor market.
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The below diagram demonstrates how all the variables are determined in classical model: Figure: Determination of all the variables in the classical model a) Start at
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Aggregate demand with inflation In previous versions of Keynesian model, Components of aggregate demand did not depend on P. In IS-LM and in AS-AD models, investments depended
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