FIGURE Price and output Variations with Shifts in Aggregate Demand and Supply
If changes in output were the result of shifts in the aggregate demand schedule along a fixed supply schedule, as in part a, we would expect a positive relationship between price and output changes. I on the other hand, output changes resulted from shifts in the aggregate supply schedule along a fixed demand schedule, as in part b, we would expect a negative association between price and output changes. Shifts to the left in the aggregate supply curve can provide an explanation for the the US economy in vears such as 1974, 1975, and 1980(see Table 8.2)