3.7.4—Demand-side and supply-side interactions

Demand-side policy changes spending; supply-side policy changes capacity or costs. Together they affect output, prices, employment and the fiscal position.

Stimulus may raise output when spare capacity exists, while supply reform determines whether expansion is inflationary or sustainable.

Trace both curves and the time horizon before attributing an outcome.

Infrastructure spending raises AD now and can shift LRAS right later if it improves logistics.

Do not assume long-run supply gains appear immediately.