Short run

iDevice ikoon Short run developments
In the short run decrease in aggregate supply brings along the following effects:
  • as the aggregate supply is now lower than aggregate demand producers are going to raise product prices
  • under higher inflation total real expenditures decrease as well
  • when total real expenditures decrease, producers decrease also total real production
  • under the decrease in production quantities, producers` demand for labor decreases and as a consequence unemployment increases
Short run developments induced by decrease in AS are shown graphically below. 

Figure 9. Decrease in AS in the short run

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