DAD–SAS model explained

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:

\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:

\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:

\pi = \pi ^{e+λ(Y-Y*)}