138 Reading: The AS–AD Model and Economic Growth

The ASAD Model and Economic Growth

The AS–AD model can convey a number of interlocking relationships between the three macroeconomic goals of growth, unemployment, and inflation. Moreover, the AS–AD framework is flexible enough to accommodate both the Keynes’ law approach that focuses on aggregate demand and the short run, while also including the Say’s law approach that focuses on aggregate supply and the long run. These advantages are considerable. Every model is a simplified version of the deeper reality and, in the context of the AS–AD model, the three macroeconomic goals arise in ways that are sometimes indirect or incomplete. In this module, we consider how the AS–AD model illustrates the three macroeconomic goals of economic growth, low unemployment, and low inflation.