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Aggregate Supply (AS) | | / (This line is the Long-Run Aggregate Supply - LRAS, which is vertical) | / | / |/____________________________ Aggregate Demand (AD) Explanation: - The vertical line represents the idea that no matter where Aggregate Demand (AD) intersects it, the output (GDP) stays the same. - If AD increases, you move up the LRAS line, indicating higher prices but the same output. - If AD decreases, you move down the LRAS line, indicating lower prices but the same output. Aggregate Supply (AS) | | ________ (This flat line is the Short-Run Aggregate Supply in a recession - horizontal SRAS) | / |/ / (This line represents the upward sloping SRAS of the modern Keynesian model) | / | / | / |/____________________________ Aggregate Demand (AD) Explanation: - The horizontal line represents the idea that when AD increases or decreases in a recession, only output changes, not the prices. - The upward sloping line suggests that as AD increases, both prices and output go up.
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