Question: How would a shock that reduces production costs in the economy (a positive supply shock) affect equilibrium output and inflation in the both short run

How would a shock that reduces production costs in the economy (a positive supply shock) affect equilibrium output and inflation in the both short run and the long run? Illustrate your answer using the aggregate demand-aggregate supply framework. You should assume that the shock does not affect the potential output of the economy.

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A positive supply shock will shift the SRAS curve to the right In the short run ... View full answer

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