AD-AS Macroeconomic Equilibrium Simulator

Policy Shocks

Fiscal spending ΔG 0

Money supply growth ΔM 0

Cost-push supply shock 0

Expectations speed λ 0.25

Current Equilibrium

Real GDP

100.0

Price level

100.0

Output gap

0.0%

AD — Aggregate Demand

SRAS — Short-Run Supply

LRAS wall — Potential output Ȳ

Equilibrium path (time → depth)

How it works

Three linear curves in Price–GDP space, extruded through a time axis so you can watch the economy's equilibrium drift period by period:

AD:   P = A − a·Y            (A shifts with fiscal ΔG and money ΔM)
SRAS: P = Pe + b·(Y − Ȳ) + shock   (anchored by expected price level Pe)
LRAS: Y = Ȳ                  (potential output — the yellow wall)

Every period the short-run equilibrium is the intersection of AD and SRAS, solved directly:

Y* = (A − Pe − shock + b·Ȳ) / (a + b)
P* = A − a·Y*

Expectations then adapt toward the price that actually cleared the market — P_e(t+1) = P_e(t) + λ·[P*(t) − P_e(t)] — which shifts the SRAS line each period. As Pe catches up with P*, output is pulled back toward Ȳ: this is the classical self-correction mechanism. A demand shock (ΔG, ΔM) moves GDP in the short run but is fully absorbed into the price level in the long run — money is neutral once expectations catch up. A supply shock shifts SRAS directly and, unlike a demand shock, drags output below potential even after expectations settle at the new price level.

ΔG / ΔM — shift the AD line's intercept (fiscal or monetary demand stimulus/contraction).
Supply shock — shifts SRAS directly (e.g. an energy-price spike raises costs at every output level).
λ — how fast expected prices chase actual prices; higher λ shortens the business cycle.
The green trail recedes into the screen as periods pass — watch it curve back toward the yellow LRAS wall.

Real GDP axis (X) Price level axis (Y) Time axis (Z, into screen)

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