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Unformatted text preview: that input prices have not yet risen in response to the increase in the price level for final goods; the economy is still operating along the old SAS curve, SAS 1 . Eventually, however, input providers will demand higher prices to reflect the increase in the general price level. Production costs will therefore increase, and the supply of real GDP will be reduced. This is represented by the shift to the left of the SAS curve from SAS 1 to SAS 2 . The end result is a higher price level, P 3 , at the same, natural level of real GDP, Y 1 ....
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- Fall '10
- Supply And Demand, aggregate demand curve, old SAS curve