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

shifters of aggragate demand

AD= C + I + G + (X-M)

• changes in consumer spending

• changes in investment spending

• changes in government spending

• Changes in net exports

Shifters of aggregate supply

AS= R + A + P

• changes in resource prices

• Changes in actions of government

• changes in productivity

stagflation

• price level increases and production goes down

• Negative supply shock

• recessionary gap

Stagnate economy + inflation

causes of inflation

Demand pull inflation and cost push inflation

Demand-pull inflation

AD increases

• demand pulls up prices

• consumers want goods and services so firms bit up prices

• too many dollars and too few products

Cost-Push inflation

SRAS decreaes

• Higher productivity costs increase prices

• negative supply shock increases costs of production and forces producers to increase prices