What is the expected outcome when aggregate demand (AD) shifts less than the shift in short-run aggregate supply (SAS)?
Understand the Problem
The question is asking about the economic implications when aggregate demand shifts less than short-run aggregate supply. It seeks to understand the relationship between shifts in these two curves and their impact on real GDP and price levels.
Answer
A smaller shift in AD compared to SAS results in a lower price level and higher output.
When the aggregate demand (AD) shifts less than the shift in short-run aggregate supply (SAS), it typically leads to a lower price level and higher output in the short run. This is due to the rightward shift in the SAS curve, indicating a greater supply at each price level.
Answer for screen readers
When the aggregate demand (AD) shifts less than the shift in short-run aggregate supply (SAS), it typically leads to a lower price level and higher output in the short run. This is due to the rightward shift in the SAS curve, indicating a greater supply at each price level.
More Information
When short-run aggregate supply increases more than aggregate demand, it enhances the economy's capacity to produce at each price level, leading to an increase in output and a decrease in prices.
Tips
A common mistake is to assume that output will remain unchanged, but if supply increases significantly more than demand, output usually increases.
Sources
- Shifts in Aggregate Supply | Macroeconomics - Lumen Learning - courses.lumenlearning.com
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