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give an example of a favourable and unfavourable shock to the aggregate supply. use the model...

give an example of a favourable and unfavourable shock to the aggregate supply. use the model of aggregate demand and aggregate supply to explain the effects of such shocks. how do these shocks affect the AD-AS curves

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Unfavourable shock - Let there be economy Named X . There arised an enormous hurricane in the country destroying a lot of buildings which were mainly the industrial centres

This will lead to the decline in short run AS and shift AS to left. This will lead to the rise in price level and fall the real GDP.

Favourable shock - Suppose the income in the country rises. This will lead to the rise in the consumption and investment demand. Hence AD curve will shift right. This will lead to the rightward shift in the AD curve and this will cause the rise in the price level and real GDP. It will create inflationary gap.

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