# Should I use 'inflation rate' instead of 'price level' when using an AD/AS diagram?

#1
Using price level implies that an AD shift to the left causes deflation, which isn't necessarily true, unless the economy is in a deep recession. An AD decrease results in disinflation, but not a reduction in the price level, so why do most AD/AS diagrams still use price level on the vertical axis instead of the inflation rate?
Last edited by bluesun86; 3 months ago
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3 months ago
#2
It's to show your analysis skills, so if price changes, what happens to the inflation rate. It's how they've always been drawn
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#3
(Original post by cloudy1012)
It's to show your analysis skills, so if price changes, what happens to the inflation rate. It's how they've always been drawn
So I draw 2 separate diagrams, one with the inflation rate and one with the price level?
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3 months ago
#4
(Original post by bluesun86)
Using price level implies that an AD shift to the left causes deflation, which isn't necessarily true, unless the economy is in a deep recession. An AD decrease results in disinflation, but not a reduction in the price level, so why do most AD/AS diagrams still use price level on the vertical axis instead of the inflation rate?
I don't really get your question tbh. AD/AS diagrams are too basic to infer whether an AD leftward shift causes deflation or disinflation and normally you just specify the axis as an infinite continuum rather than a line between two finite numbers.

Ultimately, a leftward AD shift causes a decrease in the price level, whether that causes deflation or disinflation doesn't affect what should be on the y-axis. It only infers disinflation if you actively label the origin as zero on every graph which most don't do and you're not expected to. Without labelling the origin the a leftward AD shift can plausibly result in deflation. Either way it's not important, just put price level.
Last edited by BenRyan99; 3 months ago
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3 months ago
#5
(Original post by bluesun86)
So I draw 2 separate diagrams, one with the inflation rate and one with the price level?
no just do the price level. That's the way it's usually taught and is required to be drawn like that in the exams
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