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Marlow Works

AP Macroeconomics / National Income and Price Determination

Lesson

Building the AD-AS picture

Aggregate demand is total spending. Aggregate supply is production at a price level.

Learning goals

  • List the components of aggregate demand.
  • Distinguish a movement along AD from a shift of AD.

Explanation

Aggregate demand is consumption plus investment plus government purchases plus net exports. It slopes down because a higher price level reduces real wealth, can raise interest rates, and can weaken net exports. Those are price-level effects, not “people like cheaper pizza.”

A change in the price level moves you along AD. A change in spending plans at a given price level shifts AD. More government purchases, stronger foreign demand, or more optimistic investment can shift it right. Higher taxes or a collapse in export demand can shift it left.

Key terms

  • Aggregate demand. The total quantity of real output demanded at each price level.
  • Short-run aggregate supply. The total quantity of real output firms will produce at each price level when some costs are sticky.

Common mistakes

  • Shifting AD because the price level changed.
  • Treating LRAS as a spending curve instead of potential output.

Practice

Original Marlow Works items. Check the answer explanation after you try.

1 of 1National Income and Price Determination · medium · short answer

Using AD–AS reasoning, what happens to aggregate demand and the short-run price level if government purchases increase while short-run aggregate supply is unchanged?

Original Marlow Works item — not a College Board question.

Take your time—this is practice, not a test.

Answer explanation

Oil prices jump and raise production costs. Which curve moves, and what happens in the short run?

Answer. SRAS shifts left; the price level rises and real output falls.

A cost shock is a supply event, not a change in spending plans.

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Related resources

External links with reuse status. Marlow Works is independent and does not copy restricted exam or textbook material.

  • Official / link only

    AP Macroeconomics course page

    Official six-unit framework for national income and policy models.

    College Board · All rights reserved · accessed 2026-10-01

    Open source

  • Official / link only

    FRED economic data

    Federal Reserve economic data. Terms vary by series; do not scrape or ingest.

    Federal Reserve Bank of St. Louis · Varies by series · accessed 2026-10-01

    Open source