Answer to Question #273801 in Macroeconomics for Anonymous

Question

Why Aggregate demand is derived from ISLM model in short run ?

Answer 1

Aggregate Demand curve shows an inverse relationship between Aggregate price level of national income. This can be established on the basis of IS-LM model which is normally presented on the basis of the assumption that the price level remains fixed and this shows the behavior of the economy in the short run.

This model is useful in deriving the AD curve in the short run because the prices are fixed or sticky and no inflation is taken into consideration.