Business cycles
Short run

In the short run increase in aggregate supply brings along the following effects:
- as the aggregate supply is now higher than aggregate demand, producers are going to decrease product prices in order to sell their products
- under lower inflation total real expenditures increase
- when total real expenditures increase, producers increase also total real production
- under the increase in production quantities, producers` demand for labor increases and as a consequence unemployment decreases
Short run developments induced by increase in AS are shown graphically below.
Figure 7. Increase in AS in the short run