what happen if the shift is expected? what happen if the shift is unexpected? what is the difference we need to pay attention when analyze this kind of situation with “expected” and “unexpected”? Thanks.
If it’s expected, SRAS shifts so that the AD shift resulting from monetary policy are at equilibrium on the LRAS curve. If it’s unexpected, then the SRAS doesn’t quite intersect the AD curve at the LRAS equilibrium point.
yeh, just think of the phillips curve… and remember that each short-run phillips curve (SRPC) reflects a certain level of inflationary expectations…so: unexpected --> investors remain on the same SRPC (since inflationary expectations have not changed)… there is a movement along the SRPC so that inflation AND unemployment is impacted expected --> there is a shift of the SRPC (since inflationary expectations now change)… inflation is impacted, but unemployment remains at the natural rate