Abstract
One of the goals of economists is to try to predict the changes in the state of the UK economy. Thus they are interested in the economic growth –given by the growth of potential GDP-, the inflation and business cycle fluctuations. The Aggregate Supply – Aggregate Demand model permits to understand, and even to predict the changes in these three features of macroeconomic performance. Indeed this model permits to determine the level of real GDP and the price level when the economy is at its equilibrium. Thus, in this essay, we will use this AS-AD model to predict the effects on real GDP and price level of increases in American tourism to the UK. To do so, we will first have to describe how this model works both in the short and long-run. To understand the AS-AD model, we need to explain the concepts of short-term and long-term aggregate supply.
