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Macroeconomics 1 – The domestic economy

Movements in AS

 If supply shifts to the left from AS 1 to AS 2, then this would result in higher prices,
lower output and higher unemployment (stagflation).

 Could result from a supply side “shock” – e.g. a sudden increase in oil prices

 If supply shifts to the right from AS 1 to AS 3, then this will result in higher output,
lower unemployment and lower prices.

 This could be due to, say, a fall in oil prices, or to deliberate “supply side”
government policies – e.g. labour market reforms

Illustrations and further practice

Now try TYUs 8 to 11 from Chapter 4

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