Short-run equilibrium is where AD = SRAS. A shock to either curve moves it.
Animated graph
Watch the graph build step by step in study mode.
Two kinds of shock
Demand shock
A sudden change in C, I, G or X − M: AD shifts.
Supply shock
A sudden change in costs or capacity: energy prices, droughts, wars. SRAS shifts.
Free preview
This is the free notes preview
You're reading the free notes. Aimnova Pro unlocks the full study experience — and you can try it with your first topic free to keep:
- FlashcardsLock in vocabulary and key terms with spaced repetition.
- Practice questionsAnswer exam-style questions and get instant AI marking.
- Mock exams & past-paper vaultSit full mocks and see exactly how examiners award marks.
- Personalised study planA daily plan built around your exam date and weak areas.
Monetarists say the economy corrects itself in the long run.
Animated graph
Watch the graph build step by step in study mode.
The points to remember
- Long-run equilibrium: AD = SRAS on LRAS, unemployment at its natural rate.
- Flexible wages close any gap: only the price level changes in the long run.
Feeling unprepared for exams?
Get a clear study plan, practice with real questions, and know exactly where you stand before exam day. No more guessing.
Keynesians say it can get stuck.
Animated graph
Watch the graph build step by step in study mode.
Remember it as: Monetarist: wages fall, gap closes. Keynesian: wages stick, gap stays.
Quick reminder
- Axes: Average price level up the side, Real GDP along the bottom
- Curves: AD1, AD2 and SRAS for a demand shock; AD, SRAS1 and SRAS2 for a supply shock
- Marks: PL1, PL2, Y1 and Y2
- Dots with dashed lines to the axes, an arrow for the shift
- No numbers, no title
Animated graph
Watch the graph build step by step in study mode.
A supply shock moves SRAS instead: output and prices go opposite ways.
Animated graph
Watch the graph build step by step in study mode.
Memorize terms 3x faster
Smart flashcards show you cards right before you forget them. Perfect for definitions and key concepts.
Paper 1 asked this in November 2024, as part (a) for 10 marks.
Using an AD/AS diagram, explain why in the monetarist/new classical model an economy will always operate at the natural rate of unemployment in the long run.
Model answer plan
See the answer broken into clear points, with guidance on how each point earns marks.
Animated graph
Watch the graph build step by step in study mode.
What the diagram must show
- LRAS vertical at potential output (Yfe).
- AD1 to AD2, then SRAS1 to SRAS2 as wages fall.
- The economy back on LRAS at a lower price level.
How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Theory fully explained, terms used correctly all the way through, the diagram included and fully explained |
| 7–8 | Theory explained, terms mostly right, the diagram included and explained |
| 5–6 | Theory partly explained, some terms, the diagram included |
| 1–4 | Theory only described or stated; few relevant terms |