Final answer:
To derive the AD and AS curves, plot the relationships between the price level and the levels of aggregate demand and supply. The equilibrium occurs at the intersection of these curves, determining the price and output levels of the economy.
Step-by-step explanation:
To derive the AD curve, you need to plot the relationship between the price level (P) and the level of aggregate demand (AD). The AD curve is downward sloping, indicating that as the price level decreases, the level of aggregate demand increases. To derive the AS curve, you need to plot the relationship between the price level (P) and the level of aggregate supply (AS). The AS curve can be upward sloping or vertical, depending on the economic conditions.
Based on the given equations, the AD curve can be expressed as AD = C + I + G + (X - M), where C represents consumption, I represents investment, G represents government spending, and (X - M) represents net exports. The AS curve can be expressed as AS = F(P), where F(P) represents the cost of production.
The equilibrium point occurs at the intersection of the AD and AS curves, where the quantity of aggregate demand equals the quantity of aggregate supply. This equilibrium point determines the price level and output level of the economy.