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.
ad-as models, macro theory, economics