Unformatted text preview: supply curve until the long-run aggregate supply curve, the short-run aggregate supply curve, and the aggregate demand curve all intersect. This is represented by point C and is the new equilibrium where short-run aggregate supply curve 2 equals the long-run aggregate supply curve and aggregate demand curve 2. Thus, a positive supply shock causes output to increase and the price level to decrease in the short run, but only the price level to decrease in the long run. Figure %: Graph of an adverse supply shock in the AS- AD model Let's work through another example. For this example, refer to . Notice that we begin at point A where short-run aggregate supply curve 1 meets the long run aggregate supply curve and aggregate demand curve 1. Thus, we are in long-run equilibrium to begin....
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This note was uploaded on 02/09/2012 for the course ECO ECO2013 taught by Professor Jominy during the Fall '08 term at Broward College.
- Fall '08