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aggregate demand and supply

If w and f are adjusting to the price level being

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: if W and F are adjusting to the price level being higher than expected, the SRAS curve will shift to the left - Unexpected change in the price of an important natural resource Supply shock: unexpected event that causes SRAS supply to shift Macroeconomic equilibrium in the long-Run and Short run - in the long-run macroeconomic equilibrium, AD and SRAS curves intersect at a point on the LRAS curve. Recession : In the short run, a decrease in aggregate demand causes a recession. In the long rum it causes only a decrease in the price level because there is an adjustment back to potential GDP that occurs without gvt intervention (Firms and workers adjust to Price level being lower than they expected, costs fall and cause SRAS to shift right) but lower price level Expansion In the short run, an increase in AD curve increase in Real GDp and in the long run it causes an increase in the price level. Stagflation: supply shock In the short run, SRAS shifts to the left higher price and a recession The recession increases unemployment and reduces output workers accept lower wages and firms accept lower prices The SRAS shift back to the right.--> back to potential GDP and original price level at point A.
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