3.6 Changes in the AD–AS Model in the Short Run
AD shifts move output and the price level in the same direction; SRAS shifts move them in opposite directions — a leftward SRAS shift causes stagflation.
An AD shift moves real GDP and the price level TOGETHER: AD right raises both (demand-pull inflation), AD left lowers both. Anything changing C, I, G, or Xn — confidence, wealth, policy, foreign incomes — works through AD.
An SRAS shift moves them in OPPOSITE directions: SRAS left (say, an oil-price spike) raises the price level while cutting output — stagflation, driven by cost-push inflation. SRAS right lowers the price level while raising output.
To pick the right curve from a scenario, ask whether the change hits spending (AD) or production costs (SRAS). Then read off the four outcomes: output, price level, unemployment (opposite of output), and the resulting gap.
Key terms for 3.6
Drag the curves yourself — the fastest way to make 3.6 stick.
Explaining stagflation with an AD shift. AD shifts move output and the price level in the same direction — only a leftward SRAS shift produces the rising-prices-plus-falling-output combination.
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