What's the connection between the PPC and the AD/AS model?

Both the PPC and AD/AS model demonstrate an economy and show a potential output as well as a real output. A shift in LRAS in the AD/AS model shows that the potential output of a nation increases as a result of increased efficiency or quantity/quality of factors of production. In the same way a PPC can move outwards and demonstrate the same thing. Changes in real GDP are shown in the AD/AS model as shifts of the SRAS curve and in the PPC as a movement of an indicator showing the situation of the economy. So essentially both models show the same thing. Then again, PPC is a highly theoretical model, because in real life there are more than two different goods that a country produces. AD/AS doesn't indicate what is being produced, and it shows shifts in both aggregate supply & demand and how it affects inflation.

Answered by Sara K. Economics tutor

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