The AD–AS Model and the Short-Run Phillips CurveShifts in aggregate demand lead to movements along the Phillips curve. In panel (a), the economy is initially in equilibrium at E1, with the aggregate price level at 100 and aggregate output at $10 trillion, which we assume is potential output. Now consider two possibilities. If the aggregate demand curve remains at AD1, there is an output gap of zero and 0% inflation. If the aggregate demand curve shifts out to AD2, the positive output gap reduces unemployment to 4%, and inflation rises to 2%. Assuming that the natural rate of unemployment is 6%, the implications for unemployment and inflation are shown in panel (b): with aggregate demand at AD1, 6% unemployment and 0% inflation will result; if aggregate demand increases to AD2, 4% unemployment and 2% inflation will result.