4.3.12—AD/AS shift effects

A rightward AD shift usually raises real output, the price level and employment in the short run. A leftward SRAS shift tends to lower output and employment while raising prices; an LRAS increase permits higher sustainable output with less inflation pressure.

The final effect depends on the curve’s slope, spare capacity, expectations and whether the shift is temporary or structural.

Higher consumer confidence can create demand-pull inflation and more employment; a supply shock can create stagflation—higher prices with lower output.

Demand expansion is not always inflation-only, and supply contraction is not simply “lower prices because less is produced”.