PLf
PLc
Down
Yc
Yf
Down
RGDP = Y
PL
PLf
PLc
up
Yc
Yf
up
RGDP = Y
PL
Closing a Recessionary Gap with Short-Run Aggregate Supply
The graph above shows an economy in a recessionary gap.
Show what happens to short-run aggregate supply (SRAS) on
the graph above if any of the components of SRAS below change:
Increase in productivity
Decrease in input costs
Decrease in business taxes
Increase in business subsidies
Notice as you shift the SRAS to the right, then the recessionary gap
closes and gets to or closer to full employment (Yf).
Closing an Inflationary Gap with Short-Run Aggregate Supply
The graph above shows an economy in a recessionary gap.
Show what happens to short-run aggregate supply (SRAS) on
the graph above if any of the components of SRAS below change:
Decrease in productivity
Increase in input costs
Increase in business taxes
Decrease in business subsidies
Notice as you shift the SRAS to the left, then the recessionary gap
closes and gets to or closer to full employment (Yf).