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Chapter 24: Q 20. (page 601)

What is on the horizontal axis of the AD/AS diagram? What is on the vertical axis?

Short Answer

Expert verified

The vertical axis and horizontal axis show different things.

Step by step solution

01

Step 1. Definition

An AD/AS (aggregate demand/aggregate supply model) is a method of demonstrating national income calculation and price level changes.

02

Step 2. Explanation

AD/AS model represents GDP on the horizontal axis, while on the vertical axis it represents the price level. Where the AD and AS curve meets it reflects the real growth of the economy.

The price level is the price of all the goods and services only, here the intermediate goods and services will not be counted. Price level does not mean inflation rate it is different, because the price level is indexed numbers and the inflation rate is a percentage.

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