So what does it mean to add the phrase "change in" to aggregate supply and real production? A "change in" real production means that a NEW price level-real production combination is identified on the existing aggregate supply curve. In contrast, a "change in" aggregate supply means that the entire aggregate supply curve changes, moves, or shifts; that the whole range of price levels and real production amounts changes.

Change in SR Aggregate Supply
Change in LR Aggregate Supply

The exhibit to the right displays two curves--the short-run aggregate supply curve (SRAS) in the top panel and the long-run aggregate supply curve (LRAS) in the bottom panel. A change in real production is seen as a movement along either curve. To illustrate this change, click the [Price Level and SR] button in the top panel or [Price Level and LR] button in the bottom panel. The click of either button illustrates a movement along the corresponding curve. While the phrase "change in real production" is used for both curves to indicate a movement along the curve, because real production is constant in the long run, real production actually '" changes" only by moving along the short-run aggregate supply curve.

The contrasting change is a change in aggregate supply--a shift in the aggregate supply curve. To illustrate how this transpires, click the [Determinant and SR] button in the top panel or the [Determinant and LR] button in the bottom panel. Upon clicking either button, the corresponding aggregate supply curve shifts to the right, illustrating an increase in aggregate supply, and more generally, a change in aggregate supply.

Why is this difference so important? The answer is as simple as cause and effect. The aggregate supply curves are used (together with the aggregate demand curve) to explain and analyze macroeconomic events, especially business-cycle instability. The sequence of events follows a particular pattern.

• First, a determinant (of either aggregate demand or aggregate supply) changes.


• Second, this determinant change causes one of the aggregate supply curves or the aggregate demand curve to shift. An aggregate supply determinant change causes a shift in one of the aggregate supply curves and an aggregate demand determinant change causes a shift of the aggregate demand curve.


• Third, the change in aggregate supply or aggregate demand causes an imbalance in the aggregate market (an economy-wide shortage or surplus). The aggregate market is in a temporary state of disequilibrium.


• Fourth, the economy-wide shortage or surplus causes the price level to change.


• Fifth, the change in the price level causes a change in aggregate expenditures and possibly real production (in the short run).


• Sixth, the changes in aggregate expenditures and/or real production eliminate the shortage or surplus and restore equilibrium.