What are the assumptions underlying the AD/AS model?

The assumptions underlying the AD/AS model are as follows: 1. Perfect competition: The model assumes perfect competition and there is a large number of buyers and sellers in the market. This ensures that no individual has the power to affect the market price. 2. Flexible Prices: The model assumes that prices are flexible and can be changed quickly to reflect changes in economic conditions. 3. Constant Money Supply and Velocity of Money: The model assumes that the money supply is fixed, and the velocity of money (the rate at which money changes hands within an economy) is constant. This simplifies the analysis by isolating the effects of the changes in money supply. 4. Constant Technology: The model assumes constant technology, which makes it easier to analyze the impact of changes in prices and output. 5. Constant Expectations: The model assumes that there are no sudden changes in expectations regarding prices, output, income, and consumption. 6. No external Factors: The model assumes that external factors (such as wars, natural disasters, and government interventions) do not affect the functioning of the economy. This simplifies the analysis by eliminating the need to consider external factors.