Unit 3.6 Changes in the AD-AS model in the short run

shock

an unexpected change that will shift either the AD or SRAS curve; if a change is anticipated, that anticipation would already have been incorporated into the curve, so a change must be unexpected in order to cause a change.

demand shock

an unexpected change that shifts AD; a positive demand shock (such as an increase in consumer confidence) increases AD, but a negative demand shock decreases AD.

supply shock

an unexpected change that shifts SRAS; a positive supply shock increases SRAS, but a negative supply shock decreases SRAS.

stagflation

the combination of a stagnating (falling) aggregate output and a higher price level (inflation); stagflation occurs when SRAS decreases.