AD-AS models

AD-AS models are models for determining the gross domestic product and the price level simultaneously in a country. In the AD-AS model, there are two axes, one vertical labeled as CPI and a horizontal labeled with GDP.

CPI is the consumer price index which is a measure of the average price level in a country. An AD-AS model displays aggregate demand and aggregate supply in a country's entire economy. An AD-AS model helps to explain the growth in potential GDP, inflation and economic activity.

AD-AS models helps us to better understand how GDP and inflation changes when certain external conditions changes. Changes in conditions produce shifts in the curves for aggregate demand and aggregate supply.