DAD–SAS model

The DAD-SAS model is based on the AD-AS model but 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:

$\pi =\pi ^{e}+\lambda (Y-Y*)$