How to use AD/AS diagrams to illustrate macroeconomic equilibrium
An AD/AS diagram shows where total spending and total output balance. That balance point sets the economy's price level and real output at the same time.
Formula
Equilibrium: AD = AS → determines Price Level (PL) and Real Output (Y)
Real World
In 2021, strong post-lockdown consumer spending shifted UK AD rightward while supply constraints kept AS relatively fixed, pushing up the price level — exactly as an AD/AS diagram predicts when AD rises without a matching AS increase.
Exam Focus
Label both axes (Price Level and Real Output/GDP), mark equilibrium clearly, and annotate any shift with an arrow — three easy marks examiners expect.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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