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What might shift the aggregate-supply curve to the right? Use the model of aggregate demand and...

What might shift the aggregate-supply curve to the right? Use the model of aggregate demand and aggregate supply to trace through the short-run and long-run effects of such a shift on output and the price level. Explain.

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Answer #1

In short run with shift in aggregate supply to the right causes real output to rise while the price levels fall.

If aggregate supply rises due to high output production the prices in the economy tends to fall. The increase in output causes a rise in the long run aggregate production causing a general shift of long run supply curve to the right. This is the result of boom period.

Hence for long run the permanent equilibrium shifts to point B from point A.

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