414
MACROECONOMICS
Now, consider the case of a negative supply shock that in the absence of
a policy response would shift the configuration of the economy from point
A to B in the short run and then to point C in the long run. Both ultimate objec-
tives for price and output have been negatively affected. If the central bank
attempts to return to the targets on one of these aggregates—either
P
0
or
Y
0
—it
will find that this is possible only at the cost of an even greater target deviation
on the other aggregate. An expansionary monetary policy, for instance, may
restore the output to
Y
0
by shifting the aggregate demand curve ...
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