THE ECONOMICS OF MONEY,BANKING, AND FINANCIAL MARKETS 659

CHAPTER 24 TA B L E - Aggregate Demand and Supply Analysis 627 Factors That Shift the Short-Run Aggregate Supply Curve Factor Shifts in the Short-Run Aggregate Supply Curve Factor Shifts in the Short-Run Aggregate Supply Curve Y * Yn P Wage push P Y + Yn P Y AS1 AS2 Positive supply shock P Y AS1 AS2 Rise in expected price level P Y AS2 AS1 Negative supply shock P Y AS2 AS1 AS2 AS1 Y AS2 AS1 Y EQ UI LI BRI U M IN AG GRE G AT E SU P PLY AND D EM AN D ANA LYSIS The equilibrium level of aggregate output and the price level will occur at the point where the quantity of aggregate output demanded equals the quantity of aggregate output supplied However, in the context of aggregate supply and demand analysis, there are two types of equilibrium: short-run and long-run Equilibrium in the Short Run Figure 24-4 illustrates a short-run equilibrium in which the quantity of aggregate output demanded equals the quantity of output supplied, that is, where the aggregate demand curve AD and the short-run aggregate supply curve AS intersect at point E The equilibrium level of aggregate output equals Y *, and the equilibrium price level equals P * As in our earlier supply and demand analyses, equilibrium is a useful concept only if there is a tendency for the economy to head toward it We can see that the economy heads toward the equilibrium at point E by first looking at what happens when we are at a price level above the equilibrium price level P * If the price level is at P", the quantity of aggregate output supplied at point D is greater than the quantity of aggregate output demanded at point A Because people want to sell more goods and services than others want to buy (a condition of excess supply), the prices of goods and services will fall, and the aggregate price level will drop This decline in the price level will continue until it has reached its equilibrium level of P * at point E