Short run

iDevice ikoon Short run developments
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