A 6-step visual walkthrough of National Income & Price Determination — the AD/AS model, the multiplier, equilibrium gaps, and fiscal policy, built right into the page.
AD slopes down, SRAS slopes up, and LRAS is a vertical line at potential GDP. Short-run equilibrium sits where AD meets SRAS — it can land to the left, right, or exactly on LRAS.
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The Multiplier Effect
An initial change in spending ripples through the economy as each recipient spends part of their new income (their MPC). The spending multiplier (1 ÷ MPS) tells you the total eventual change in GDP.
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Recessionary Gap
When equilibrium (AD ∩ SRAS) sits left of LRAS, the economy is producing below potential — a recessionary gap with cyclical unemployment present.
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Inflationary Gap
When equilibrium sits right of LRAS, the economy is temporarily producing beyond sustainable capacity — an inflationary gap that puts upward pressure on prices.
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Long-Run Self-Adjustment
In a recessionary gap, falling wages over time shift SRAS right (SRAS1 → SRAS2), lowering the price level and raising real GDP back toward LRAS — without any policy action.
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Expansionary Fiscal Policy
↑G or ↓T shifts AD right (AD1 → AD2), closing a recessionary gap by raising both the price level and real GDP — but watch for crowding out partially offsetting the effect.
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How to use the visual review
Spend 30 seconds per step before clicking next. Look at the diagram, then ask yourself: "Could I sketch this from memory and label every part?"
Use the dots below the diagram to jump straight to any step, or the arrow keys to move forward and back.
This is great for review the night before the exam — fast, visual, and covers every core AD/AS diagram you need to remember from Unit 3.