What role do expectations play in the AD–AS model?
Expectations about future economic conditions can significantly impact both AD and AS. For example, if businesses expect future economic conditions to improve, they may increase investment today, shifting AD to the right. Likewise, expectations of inflation can lead to preemptive price increases, shifting the SRAS to the left
How does the AD–AS model explain inflation and unemployment?
Inflation in the AD–AS model is typically a result of demand-pull factors (when AD exceeds AS) or cost-push factors (when SRAS shifts leftward, reducing output and increasing prices). Unemployment can be analyzed through changes in both AD and AS; for example, a leftward shift in AD can lead to higher unemployment due to lower demand for labor.
The AD–AS model’s flexibility and comprehensiveness make it a vital tool in the analysis of macroeconomic policies and dynamics, offering insights into the complex interactions between demand, supply, and policy interventions in an economy.
In Argentine they have moved the AD curve to the left in a very fast and most salvatic way in the hope that businesses can start expecting future economic conditions to improve and start investment.
"In this scenario, private pollsters detected that consumption fell 17% on average in August while some products posted a decrease of about 30%...
Meanwhile, trade exchange left a surplus of US$ 1,963 million, thus reversing a US$ 974 million deficit, according to the Indec, as a result of a 15% improvement in exports, which amounted to US$ 6,793 million, against imports that dropped almost 30% to US$ 4,830 million. The recovery in foreign sales was mainly due to a 20% increase in the quantities sold, which compensated for the 5% decrease in prices, especially in agricultural products.
