Shifts in Aggregate Supply in the A2

Shifts in Aggregate Supply in the A2 - curves Once the...

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Shifts in Aggregate Supply in the AS-AD Model Shifts in the short-run aggregate supply curve are much rarer than shifts in the aggregate demand curve. Usually, the short-run aggregate supply curve only shifts in response to the aggregate demand curve. But, when a supply shock occurs, the short-run aggregate supply curve shifts without prompting from the aggregate demand curve. Fortunately, the correction process is exactly the same for a shift in the short-run aggregate supply curve as it is for a shift in the aggregate demand curve. That is, when the short-run aggregate supply curve shifts, a short- run equilibrium exists where the short-run aggregate supply curve intersects the aggregate demand curve. Then the aggregate demand curve shifts along the short-run aggregate supply curve until the aggregate demand curve intersects both the short-run and the long-run aggregate supply
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Unformatted text preview: curves. Once the economy reaches this new long-run equilibrium, the price level is changed but output is not. There are two types of supply shocks. Adverse supply shocks include things like increases in oil prices, a drought that destroys crops, and aggressive union actions. In general, adverse supply shocks cause the price level for a given amount of output to increase. This is represented by a shift of the short-run aggregate supply curve to the left. Positive supply shocks include things like decreases in oil prices or an unexpected great crop season. In general, positive supply shocks cause the price level for a given amount of output to decrease. This is represented by a shift of the short-run aggregate supply curve to the right. Figure %: Graph of a positive supply shock in the AS- AD model...
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