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The AD/AS model

The AD/AS model is central to macro-economic analysis, because it focuses on the determination of the equilibrium level of real output and the level of prices. The model came out of the brilliant insights JM Keynes brought to Macroeconomics and was formalised by his close follower Hicks.

Using AD and AS curves, allows us in a relatively simple way, to illustrate complex inter-relationships and linkages, that are characteristic of market and mixed economies.


Why is the AS/AD model important for exam success?

Basically because there are lots of questions needing AS/AD analysis - You would find it very very difficult to find an IB examination set of papers that did not include AS/AD analysis somewhere along the line..

It is relevant across a wide area of macro-economics and allows you to tackle a variety of macro-economic questions using a formalised mode of analysis, rather than relying purely on descriptive or ad hoc approaches. It is, therefore, an excellent tool for accumulating marks in HL and SL economics exams and can be used in Macro and Development Sections.

What are the differences between the AD/AS model and the D&S model?


Figure 1 Demand and supply and AD/AS compared

But be careful with definitions  AD is not just the sum of  consumer demand for example.