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AP: The abbreviation for average product, which is the quantity of total output produced per unit of a variable input, holding all other inputs fixed. It is found by dividing total product by the quantity of the variable input. Average product, abbreviated AP also goes by the alias of average physical product (APP), so don't be confused by the extra term (physical).

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Lesson 16: Aggregate Shocks | Unit 3: Basic Shifts Page: 10 of 21

Topic: AD Increase: Short Run <=PAGE BACK | PAGE NEXT=>

The short-run equilibrium is given by the intersection of the negatively sloped AD curve and the positively-sloped SRAS.
  • An increase in AD and results in a new short-run equilibrium.
  • At the new equilibrium, both real production and the price level increase.
  • Real production can increase above full employment -- in the short run.
  • This shift gives us an intermediate point from one long-run equilibrium to another.

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A shock to the short-run aggregate market caused by a decrease in aggregate supply, resulting in and illustrated by a leftward shift of the short-run aggregate supply curve. A decrease in aggregate supply in the short-run aggregate market results in an increase in the price level and a decrease in real production. The level of real production resulting from the shock can be greater or less than full-employment real production.

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