AD-AS Shift Combinations: Every Case Solved

In the aggregate demand and aggregate supply model, a shift decides the new price level and the new level of real GDP (output). When only one curve moves, both outcomes have a single, definite answer. When aggregate demand and short-run aggregate supply shift at the same time, one of the two outcomes always becomes indeterminate, meaning its direction depends on which shift is larger. This guide gives the outcome for all four single shifts, names the stagflation case, lays out every combination in one table, reviews briefly what shifts each curve, and adds the long-run note you need for a complete answer.

The four single shifts

When one curve moves and the other stays put, the new macro equilibrium is where the moved curve now crosses the fixed one. Both the price level and real GDP are determined. On the graph the price level is on the vertical axis and real GDP is on the horizontal axis.

AD increases (shifts right). Total spending rises at every price level, so AD slides right along a fixed SRAS. The price level rises and real GDP rises. This is a demand-side expansion, and if it outruns capacity it becomes demand-pull inflation.

AD decreases (shifts left). Total spending falls at every price level. The price level falls and real GDP falls. This is the pattern of a demand-driven recession, with output and prices both weakening.

SRAS increases (shifts right). Firms supply more output at every price level, usually because input costs fell or productivity rose. The price level falls and real GDP rises. This is the rare, welcome combination of more output and lower prices at once.

SRAS decreases (shifts left). Firms supply less at every price level, usually because input costs jumped, such as an oil shock. The price level rises and real GDP falls. Output down and prices up together is stagflation, the one single shift that worsens both goals at the same time. The mechanism is covered in full in the stagflation guide.

Notice the pattern. An AD shift moves the price level and output in the same direction. An SRAS shift moves them in opposite directions. You can drag either curve and watch the equilibrium move in the AD-AS sandbox.

The nine-case table

Combine the curves. AD can increase, decrease, or stay unchanged, and so can SRAS, giving nine combinations. This table is the complete answer key. Read the AD row and the SRAS condition, and take the outcomes for the price level and real GDP.

Every single-shift row has two definite answers. Every double-shift row has one definite answer and one indeterminate answer. The rule is the same as in microeconomics: when both curves push a variable the same way it is determined, and when they push it opposite ways it is indeterminate and turns on the relative size of the two shifts.

Both curves shift: how the indeterminate case is decided

When AD and SRAS both move, treat each shift as a vote on the direction of the price level and a vote on the direction of real GDP. Where the two shifts agree, the variable is settled. Where they disagree, the outcome depends on which shift is larger, so it cannot be read off one graph.

### Both AD and SRAS increase

Both shifts push real GDP up, so output definitely rises. On the price level they disagree: the AD increase pushes it up, the SRAS increase pushes it down, so the price level is indeterminate. If AD shifts more, the price level rises; if SRAS shifts more, it falls. Intuition: strong consumer spending (AD right) arriving at the same time as falling energy prices cut firms' costs (SRAS right). Output clearly grows, but whether the price level climbs or eases depends on which force wins. This is close to the ideal of growth without inflation.

### Both AD and SRAS decrease

Both shifts push real GDP down, so output definitely falls. On the price level they disagree: the AD decrease pushes it down, the SRAS decrease pushes it up, so the price level is indeterminate. A larger AD fall lowers the price level; a larger SRAS fall raises it. Intuition: weak spending (AD left) hitting at the same time as a supply shock raises costs (SRAS left). A recession is certain, but the economy could see falling prices or stagflationary price pressure depending on which shift dominates.

### AD increases and SRAS decreases

Both shifts push the price level up, so the price level definitely rises. On output they disagree: the AD increase pushes real GDP up, the SRAS decrease pushes it down, so real GDP is indeterminate. If the AD increase is larger, output rises; if the SRAS decrease is larger, output falls. Intuition: a spending boom (AD right) colliding with a sharp rise in input costs (SRAS left). Inflation is guaranteed, but whether the economy grows or contracts is ambiguous.

### AD decreases and SRAS increases

Both shifts push the price level down, so the price level definitely falls. On output they disagree: the AD decrease pushes real GDP down, the SRAS increase pushes it up, so real GDP is indeterminate. A larger SRAS increase raises output; a larger AD decrease lowers it. Intuition: soft demand (AD left) at the same time as a productivity leap lowers costs (SRAS right). The price level clearly falls, but output could expand or shrink depending on the relative size of the shifts.

What shifts each curve

To know which case you are in, you have to spot which curve moved. Aggregate demand is the sum of its four spending components, C plus I plus G plus NX, so AD shifts when consumption, investment, government spending, or net exports change. Rising consumer confidence, a tax cut, higher government spending, or a weaker currency that lifts net exports all shift AD right; the opposites shift it left.

Short-run aggregate supply shifts with the cost and productivity of producing output. Cheaper inputs, such as lower wages or lower oil prices, and gains in productivity shift SRAS right, while higher input costs and adverse supply shocks shift it left. A supply shock, like a sudden jump in energy prices, is the classic leftward SRAS shift that drives stagflation. You can build and shift both curves in the aggregate demand module and the aggregate supply module.

The long-run note

Everything above uses the short-run curve. In the long run, long-run aggregate supply is vertical at the economy's full-employment output, because once wages and input prices fully adjust, the price level no longer changes how much the economy can produce. That vertical LRAS is why the model self-corrects. If an AD or SRAS shift pushes output away from full employment, wages and prices eventually adjust, SRAS slides back, and output returns to potential at a new price level. So a demand-side boom that raises output above potential in the short run leaves output unchanged and only the price level higher in the long run. Keep the short-run answers above for short-run questions, and switch to the vertical LRAS logic when a question asks about the long run or self-correction.

Common exam mistakes

Reading both outcomes off a double-shift graph. The biggest mark-loser. When both curves shift, you can draw one picture where the price level happens to rise, but that is only one possible drawing. The indeterminate variable depends on the relative size of the shifts, so the correct answer is the word indeterminate, not whatever your single sketch shows.

Mislabeling stagflation. Stagflation is rising prices with falling output, and on the AD-AS graph it is a leftward shift of SRAS, not anything to do with AD. If you try to show stagflation by moving AD, you will get the price level and output moving the same way, which is the opposite of what stagflation means.

Confusing SRAS and LRAS. Use the upward-sloping SRAS for short-run shift questions and the vertical LRAS for long-run and self-correction questions. Answering a short-run question with the vertical curve makes real GDP look fixed when it is not, and answering a long-run question with SRAS misses the self-correction back to potential.

Forgetting that an AD increase raises both prices and output. Because an AD shift moves the price level and real GDP in the same direction, an increase raises both. Students sometimes expect more output to come with lower prices; that only happens for an SRAS increase, not an AD increase.

Practice and connect

These cases assume the single-curve model is automatic, so make sure you can shift AD and SRAS one at a time first, then drag both curves in the AD-AS sandbox. Link the demand-side cases to demand-pull versus cost-push inflation and the supply-side worst case to the stagflation guide, and connect the policy responses through expansionary versus contractionary policy. Reinforce the key terms, aggregate demand, aggregate supply, and real GDP, in the aggregate supply module until you can name both outcomes, or correctly call one indeterminate, for any pair of shifts.