MONETARY POLICY OBJECTIVES AND TARGETS
413
curve. Supply shocks, which are unexpected changes in supply, are different
from demand shocks as they shift both the short-run and the full-information
aggregate supply curves. For example, a negative supply shock shifts both the
long-run and short-run aggregate supply curves to the left to
AS
1
F
I
and
AS
1
. In
the short-run aggregate demand and supply
AS
1
intersect at point B. As prices
have risen, workers renegotiate their nominal wages upward that shifts the
short-run supply curve leftward again until it intersects the full-information
aggregate supply curve
AS
1
F
I
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