Shifting the SRAS Curve
Shifting the LRAS Curve

• The short-run aggregate supply curve is positively sloped and captures the specific one-to-one relationship between the price level and real production.


• The long-run aggregate supply curve is vertical at the full-employment level of production, indicating that real production is independent of the price level.

• Short-Run Aggregate Supply: Consider first the short-run aggregate supply curve. An increase in short-run aggregate supply is illustrated by a rightward shift in the SRAS curve in the top panel. A decrease in short-run aggregate supply is illustrated by a leftward shift. Click the [Increase in SRAS] or [Decrease in SRAS] buttons for a demonstration.


• Long-Run Aggregate Supply: Now consider the long-run aggregate supply curve. An increase in long-run aggregate supply is illustrated by a rightward shift in the LRAS curve in the bottom panel. A decrease in long-run aggregate supply is illustrated by a leftward shift. Click the [Increase in LRAS] or [Decrease in LRAS] buttons for a demonstration.

Shifts of the short-run or long-run aggregate supply curves, brought about by such things as education or technology, an increase in the size of the population or the capital stock, or changes in wages or energy prices, can be the source of disequilibrium in the aggregate market. Such disequilibrium then results in changes in the price level. The key is that aggregate supply determinants CAUSE shifts of the aggregate supply curves which CAUSE disequilibrium which then CAUSES changes in the price level.

This suggests an important difference between two related changes--a change in aggregate supply and a change in real production.

• A change in aggregate supply is any shift of either of the aggregate supply curves. With this change, the entire curve shifts to a new location. A change in aggregate supply is caused by a change in the aggregate supply determinants. This is comparable to a change in supply in the analysis of the market.


• A change in real production is a movement along a given aggregate supply curve. This change involves the movement from one point on the existing curve to another point on the SAME curve. The curve does not move. A change in real production is caused by a change in the price level, and ONLY a change in the price level! This is comparable to a change in quantity supplied in the analysis of the market.
  
  While a change in real production, as a movement along the curve, applies in principle to both short-run and long-run aggregate supply curves, because real production does not change in the long run, from a practical standpoint, a change in real production primarily applies to the short-run aggregate supply curve.