Demand Shocks (AD Shifts)
Positive Demand Shock: AD Shifts Right
AD↑: Price level rises, GDP rises, unemployment falls — demand-pull inflation
Negative Demand Shock: AD Shifts Left
Supply Shocks (SRAS Shifts)
Positive Supply Shock: SRAS Shifts Right
Negative Supply Shock: SRAS Shifts Left
SRAS↓: Price level rises AND GDP falls — stagflation (the worst outcome)
Summary Table
Policy Dilemma: Stagflation
AD Shifts vs. SRAS Shifts: Key Difference
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Common Mistakes