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DAD–SAS model

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Macroeconomic model

The DAD–SAS model is a macroeconomic model based on the AD-AS model but that looks at the different incomes at different inflation levels.

DAD curve

The DAD (Dynamic aggregate demand) curve is in the long run a horizontal line called the EAD (Equilibrium aggregate Demand) curve. The short run DAD curve at flexible exchange rates is given by the equation:

π = μ − b Y + b Y − 1 + h ( Δ i W + Δ ϵ e ) {\displaystyle \pi =\mu -bY+bY_{-1}+h(\Delta i^{W}+\Delta \epsilon ^{e})}

The short run DAD curve at fixed exchange rates is given by the equation:

π = ϵ + π W − b Y + b Y − 1 + γ Δ Y W + δ Δ G − f ( Δ i W + Δ ϵ e ) {\displaystyle \pi =\epsilon +\pi ^{W}-bY+bY_{-1}+\gamma \Delta Y^{W}+\delta \Delta G-f(\Delta i^{W}+\Delta \epsilon ^{e})}

SAS curve

The SAS (Surprise aggregate supply) curve is in the long run a vertical line called the EAS (Equilibrium aggregate Supply) curve. The short run SAS curve is given by the equation:

π = π e + λ ( Y − Y ∗ ) {\displaystyle \pi =\pi ^{e}+\lambda (Y-Y*)}


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