An increase in short run aggregate supply (SRAS)

• What was the initial equilibrium level of output represented as?

  AP1Y1
• What does the equilibrium at AP1Y1 represent?

  A recessionary or negative output gap
• What is the negative output gap equal to?

  Y1YFE
• What happens when one of the determinants of SRAS increases?

  SRAS shifts from SRAS1 to SRAS2
• What is the effect on average prices when SRAS increases?

  Average prices fall to AP2
• What is the new real level of output after the increase in SRAS?

  Y2
• Where is the new short-run equilibrium located?

  At AP2Y2
• Is there still a negative output gap at the new equilibrium?

  Yes, but it is smaller (Y2YFE)
• What is the new negative output gap equal to?

  Y2YFE
• increase in SRAS