Booms and recessions (IV): dynamic aggregate supply and demand - The DAD-SAS model

5 important questions on Booms and recessions (IV): dynamic aggregate supply and demand - The DAD-SAS model

What equality holds in long run equilibrium in the DAD-SAS model? (inflation)

π=πe

What does EAS stand for?

Equilibrium Aggregate Supply

What are transitory shocks? (DAD-SAS)

Shocks displacing economy from equilibrium
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In what three steps does one draw a SAS curve?

1. Mark πe on the vertical axis
2. Go horizontal until Y* is reached
3. Draw positive sloped line through the point reached

In what three steps does one draw a DAD curve?

1. Markt last periods income on the horizontal axis
2. Flexible: move up until EAD at money growth rate
    Fixed: move up until EAD at world inflation rate
3. Draw negative sloped line through obtained point

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