Short-run equilibrium output (AD and AS)

The economy is in short-run equilibrium where AD equals SRAS, and so there will be an output level of Y at a price level of P

 

The components of AD include consumption (C), investments (I), government spending (G), export (E), and import (M). Putting this together, it is C+I+G +(E-M).

 

 

 

 

 

 

What causes changes in AD? (shifts to the right):

Consumption: reduction in income tax

Investments: reduction in interest rates (boosts consumer spending and corporation investments

Government spending: increase in government spending (boosts demand for certain products and increases earning of that sector)

Exports/Imports: an improvement competitiveness performance (boosts exports)