Supply ShocksA supply shock shifts the short-run aggregate supply curve, moving the aggregate price level and aggregate output in opposite directions. Panel (a) shows a negative supply shock, which shifts the short-run aggregate supply curve leftward and causes stagflation—lower aggregate output and a higher aggregate price level. Here, the short-run aggregate supply curve shifts from SRAS₁ to SRAS₂, and the economy moves from E₁ to E₂. The aggregate price level rises from P₁ to P₂, and aggregate output falls from Y₁ to Y₂. Panel (b) shows a positive supply shock, which shifts the short-run aggregate supply curve rightward, generating higher aggregate output and a lower aggregate price level. The short-run aggregate supply curve shifts from SRAS₁ to SRAS₂, and the economy moves from E₁ to E₂. The aggregate price level falls from P₁ to P₂, and aggregate output rises from Y₁ to Y₂.