Week 3_11 AS_AD Model and Macroeconomic Equilibrium

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Get to know Basic Concepts:

-- Remember: AD = C + I + G + ( X – M ). Any change in consumer spending, investments, government spending or trade will lead to a shift of the demand curve.

-- If the economy is experiencing a deflationary gap, macro economic equilibrium will be established by a fall in real wages, as demand for labour falls.

-- If the economy is experiencing an inflationary gap, macro economic equilibrium will be established by an increase fall in real wages as demand for labour falls.

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Question: 

Will an increase in real wages leads to a shift of LRAS or SRAS?

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Discuss with fellow students in Discussion Forum. 
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