Macroeconomics

‭Movements Along the SRPC‬ ‭Movements‬ ‭along‬ ‭the‬ ‭SRPC‬ ‭occur‬ ‭when‬ ‭shifts‬ ‭in‬ ‭the‬ ‭AD‬ ‭curve‬ ‭happen,‬ ‭either‬ ‭due‬ ‭to‬ ‭positive‬ ‭or‬ ‭negative‬ ‭demand‬ ‭shocks.‬ ‭An‬ ‭increase‬ ‭in‬ ‭AD‬ ‭or‬ ‭a‬ ‭positive‬‭demand‬‭shock‬‭shifting‬‭the‬‭AD‬‭curve‬‭to‬‭the‬ ‭right‬ ‭reduces‬ ‭unemployment‬ ‭but‬ ‭raises‬ ‭price‬ ‭levels,‬ ‭leading‬ ‭to‬ ‭an‬ ‭upward‬ ‭movement‬‭along‬‭the‬‭SRPC‬ ‭(e.g.,‬‭from‬‭point‬‭A‬‭to‬‭B).‬‭Alternatively,‬‭a‬‭decrease‬‭in‬‭AD‬‭or‬‭a‬‭negative‬‭demand‬‭shock‬‭shifting‬‭the‬‭AD‬‭curve‬ ‭to‬ ‭the‬ ‭left‬ ‭increases‬ ‭unemployment‬ ‭but‬ ‭reduces‬ ‭the‬ ‭price‬ ‭level,‬ ‭resulting‬ ‭in‬ ‭a‬ ‭downward‬ ‭movement‬ ‭along the SRPC (e.g., from point B to A).‬ ‭When‬ ‭the‬ ‭government‬ ‭and‬ ‭central‬ ‭banks‬ ‭take‬ ‭actions‬ ‭to‬ ‭reduce‬ ‭unemployment,‬ ‭such‬ ‭as‬ ‭increasing‬ ‭government‬ ‭spending‬ ‭or‬ ‭cutting‬ ‭interest‬‭rates,‬‭it‬‭typically‬‭leads‬‭to‬‭higher‬‭inflation.‬‭This‬‭is‬‭because‬‭the‬ ‭increased‬‭demand‬‭for‬‭goods‬‭and‬‭services‬‭can‬‭push‬‭prices‬‭upward,‬‭as‬‭reflected‬‭by‬‭an‬‭upward‬‭movement‬ ‭along‬ ‭the‬ ‭SRPC.‬ ‭On‬ ‭the‬ ‭other‬ ‭hand,‬ ‭when‬ ‭the‬ ‭government‬ ‭and‬ ‭central‬ ‭banks‬ ‭implement‬ ‭policies‬ ‭to‬ ‭combat‬‭inflation,‬‭like‬‭reducing‬‭government‬‭spending‬‭or‬‭raising‬‭interest‬‭rates,‬‭it‬‭tends‬‭to‬‭result‬‭in‬‭higher‬ ‭unemployment‬‭as‬‭economic‬‭activity‬‭slows‬‭down.‬‭This‬‭is‬‭reflected‬‭by‬‭a‬‭downward‬‭movement‬‭along‬‭the‬ ‭SRPC.‬ ‭Shifts of the SRPC‬ ‭Moreover,‬ ‭the‬ ‭short-run‬ ‭Phillips‬ ‭curve‬ ‭can‬ ‭shift‬ ‭over‬ ‭time.‬ ‭This‬ ‭means‬ ‭that‬ ‭both‬ ‭the‬‭unemployment‬ ‭rate‬‭and‬‭the‬‭inflation‬‭rate‬‭can‬‭change‬‭simultaneously‬ ‭due‬‭to‬‭various‬‭factors.‬ ‭Shifts‬‭of‬‭the‬‭SRPC‬‭are‬ ‭caused‬ ‭by‬ ‭shifts‬ ‭of‬ ‭the‬ ‭SRAS‬‭curve.‬‭The‬‭SRAS‬‭and‬‭SRPC‬‭shift‬‭in‬‭opposite‬‭directions.‬ ‭For‬‭instance,‬ ‭when‬ ‭SRAS‬ ‭increases‬ ‭and‬ ‭shifts‬ ‭to‬ ‭the‬ ‭right,‬ ‭SRPC‬‭shifts‬‭to‬‭the‬‭left‬‭indicating‬‭a‬‭positive‬‭supply‬‭shock‬ ‭that‬‭reduces‬‭the‬‭unemployment‬‭and‬‭inflation‬‭rates.‬‭Alternatively,‬‭when‬‭SRAS‬‭decreases‬‭and‬‭shifts‬‭to‬‭the‬ ‭left,‬ ‭SRPC‬ ‭shifts‬ ‭to‬ ‭the‬ ‭right‬ ‭indicating‬ ‭a‬ ‭negative‬‭supply‬‭shock‬‭that‬‭increases‬‭the‬‭unemployment‬‭and‬ ‭inflation‬‭rates.‬ ‭For‬‭example,‬‭changes‬‭in‬‭aggregate‬‭supply,‬‭which‬‭can‬‭be‬‭influenced‬‭by‬‭factors‬‭like‬‭changes‬ ‭in‬‭technology,‬‭oil‬‭prices,‬‭or‬‭productivity,‬‭can‬‭lead‬‭to‬‭shifts‬‭in‬‭the‬‭curve.‬ ‭When‬‭the‬‭SRAS‬‭curve‬‭shifts,‬‭it‬‭can‬ ‭impact both inflation and unemployment, creating a different trade-off between these two variables.‬

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