The most commonly used model to explain short- and medium-term fluctuations in the economy and the transmission of monetary policy impulses is the aggregated supply of goods and the aggregated demand for goods (GA-GN model, in German: Gesamtwirtschaftliches Angebot, Gesamtwirtschafliche Nachfrage). The English term Aggregate Supply - Aggregate Demand leads to the often used abbreviation AS-AD model. In this model, two central macroeconomic variables are put in relation to each other, economic output and inflation. This means, the overall economic production level of goods and services measured by the real GDP, and the general price level measured by the consumer goods-price index or the GDP-deflator. Although this model looks very similar to the market model, it cannot be considered its large-scale version. In the AS-AD model, the microeconomic substitution effects, as the central set of rules, are omitted. Here, the quantity of goods does not only refer to one good, but to the real GDP, i.e. to all goods produced in an economy.
In the following, the two components of the model are derived theoretically.