Price
 level

Real GDP

p

Y

SRAS_2

    SRAS is initially set at the right 
end of the slider.
    Slide the shifter to the left to 
see the effect of a supply shock, 
such as a substantial increase in 
oil prices in the short run.
    Then slide the shifter to the 
right to see the adjustment back 
to potential GDP (Y_0) in the long 
run. See also that the price level 
will be back to the initial level (p_0).
    (In this basic model we assume 
that the long-run AS has not 
changed.)

The Short-Run and Long-Run Effects of a Supply Shock

AD

SRAS_1

p_0

Y_0

u = Vector((0, 0), (10, 0))
v = Vector((0, 0), (0, 10))
SRAS = 0 (slider from -1.5 to 0, step 0.01)
f(x) = If[1 ≤ x ≤ 9, (0.8 * x) + 1 - SRAS]
N_S = Point(f)
h(x) = If[1 ≤ x ≤ 9, ((-0.8) * x) + 9]
p(x) = If[1 ≤ x ≤ 9, (0.8 * x) + 1]
N_{BX} = (5, 0)
N_{BY} = (0, 5)
B = (5, 5)
d = Segment(B, N_{BY})
e = Segment(B, N_{BX})
A = Intersect(f, h, (5, 5))
N_X: (x(A), 0)
N_Y: (0, y(A))
b = Segment(A, N_X)
c = Segment(A, N_Y)