hi everybody so you're really comfortable with macro equilibrium now you're looking at shifting these curves you might think this is an absolute piece of cake but you've got to make sure you're 100 confident with it given the number of times you're going to be shifting ad SRS to lrs in your examinations in your essays let's look at a shift of AD first there are two ways of using the classical model to shift ad and then we'll look at the Keynesian interpretation let's start simple with the classical model and just have SRS and AD so there we are equilibrium is here at y1 and P1 let's just take an ad shift to the right in each case we've got 81 to 82 now shifting it right and then we're going to show you an increase in economic growth and an increase in demand for inflationary pressure so this is a very simplified version but 100 correct we don't have an lras on here we don't need it if we just want to show some very very simple outcomes of increased growth and increased demand for inflationary pressure so there's one way of using the classical model a second way include includes lrs and it looks something like this so starting the same way ad and SRS there we go but now we can stick on an lras curve right maybe over here all right we need to label now so there's fun employment there is currently a gap in the economy a deflationary Gap a recessionary Gap a negative outper Gap whatever you want to call it with a price level of P1 so if you want to start there then you can shift 80 to the right from 81 to 82 I'm going to show you exactly the same outcomes an increase in economic growth and an increase in demand for inflationary pressure but at least now you've got wire fees so maybe for some evaluation for talking about spare capacity being exhausted moving towards yfe this might be better for you if you want to be a bit more Technical and you want lrs to be included in your diagram for Keynes it's a lot easier there is only one way of showing a shift of AD remember the Keynesian NRS curve looks something like that all right so stick 80 on a good idea is to make sure that ad is cutting lrns at The Sweet Spot the Bendy part of lrs and then you'll show you exactly the same outcomes as we're showing Above So ad1 to 82 we're seeing an increase in economic growth from y1 to Y2 you've also got YF remember don't forget to label that and we're also showing an increase in demand pull inflationary pressure from P1 to P2 so very simple using canes right there the beauty of using canes if you've got lots of evaluation on one diagram so if ad was on the horizontal part there wouldn't be the inflationary pressure If ad was on the vertical part there wouldn't be the increase in growth there would just be inflationary pressure so this one is very powerful for evaluation if you're shifting 80 to the left you've got the same three options just shift a d the other way so that covers shifts of AD let's now move on to SRS shifting either right or left shifts of SRS is really simple it's a classical model phenomena so you have to use that use the simplified version so we've got SRS there we've got ad cutting in keep it as simple as that equilibrium at y1 price level at P1 and then just shift SRS whichever way so if you want to show a positive supply-side shock srs1 to srs2 with an increase in economic growth and a reduction in cost push inflationary pressure or if you want to show a negative supply-side shock then shift SRS to the left from srs1 to srs3 a decrease in economic growth and an increase in cost push inflationary pressure also known as stagflation that phenomenon so that's how you shift SRS if there is a change in cost of production that affects all firms in the economy simple as that let's now look at NRS for shifts of lras again you've got two options the classical model or the Keynesian model both are really really simple do whichever one you prefer let's look at the classical model first right we'll start with long run aggregate supply we know it's vertical like that and just have an ad curve right so simplifying it like that we've got yfe there and we've got our price level there if you want and then just shift lrs let's say we're shifting NRS to the right in which case our new lras code is going to look like that nrs1 to nrs2 we see lower cost to push inflation so what we're showing here is an increase in both actual and potential growth and we're showing a reduction in cost push inflationary pressure just with an Ade curve on it like that it's simplified but it's going to score you 100 of the markets available for the diagram if you use it in your essay so that's the classical way of showing it my recommendation very simple you've also got the Keynesian interpretation so remember the Keynesian lras curve looks like that right now what I've recommend to get this one drawn correctly make sure your ad curve is cutting NRS in the Bendy pive in The Sweet Spot here and then when we shift lrs you'll have four different real GDP levels on your x-axis here so let's get 80 looking something like that all right it's your initial equilibrium is there at y1 and we've got a price level there of P1 then shift lres to the right like this so from lras1 to lrs2 what we're then showing is a new Full Employment level of output from yfu1 to yv2 so there's your increase in potential growth but then you've also got an increase in actual growth from y1 to Y2 and a reduction in Costa push inflationary pressure from P1 to P2 all right so there's the Keynesian way you're going to have four y values on your x-axis here and you're going to have the reduction in cost pushing pressure and pressure that's the Keynesian interpretation whichever one you prefer using it doesn't matter you will score full marks whichever way you go as long as you draw correctly that covers shifts thank you so much for watching stay tuned for the next video when we look at output Gap see you then