If actual output exceeds potential output, the short-run aggregate supply curve shifts downward over time.

Question

Quizplus · Accepted Answer

If actual output exceeds potential output, it is generally seen as an unsustainable situation and will lead to inflationary pressures in the economy. In this case, the short-run aggregate supply curve would shift upward over time as firms increase their prices and output to meet the increased demand.

If Actual Output Exceeds Potential Output, the Short-Run Aggregate Supply