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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