What is labeled on the vertical axis in the aggregate demand/aggregate supply model?

In the aggregate demand/aggregate supply model, the vertical axis is labeled as the price level. This reflects the overall price of goods and services in an economy at a given moment, typically measured by indices such as the Consumer Price Index (CPI) or the GDP deflator.

The price level is crucial in determining the purchasing power of consumers and the inflationary expectations of businesses, influencing their production and investment decisions. As the price level changes, it affects the quantity of goods and services demanded and supplied in the economy, creating movements along the aggregate demand and aggregate supply curves.

The other options, while relevant to economic analysis, do not represent the primary concern of the vertical axis. Output levels and income levels are typically depicted along the horizontal axis, while the employment rate, although significant, is not a direct measurement used in this specific model. Understanding the significance of the price level is essential for interpreting shifts and movements within the aggregate demand and supply framework.