Shifts in Aggregate Demand u In the short run, shifts in aggregate demand cause fluctuations in the economy’s output of goods and services. u In the long run, shifts in aggregate demand affect the overall price level but do not affect output.
An Adverse Shift in Aggregate Supply... 1. An adverse shift in the short-run aggregate-supply curve… AS 2 Long-run aggregate supply Short-run aggregate supply, AS 1 Quantity of Output Price Level 0 Aggregate demand A Y1Y1 P1P1 3. …and the price level to rise. P2P2 2. …causes output to fall… B Y2Y2