Positive AD shockShort-run AdjustmentLong-run AdjustmentNegative AD shockShort-run AdjustmentLong-run AdjustmentPositive AS ShockShort-run AdjustmentLong-run AdjustmentNegative AS ShockShort-run AdjustmentLong-run AdjustmentNegative AS Shock with Accommodation by FEDShort-run AdjustmentFed AccommodationPositive AD shockShort-run Adjustment(1) AD↑→ P↑ Q↑ (2) Qactual > QFE → above long-run Q(3) Pactual > Pexpected and Uactual < UNR Long-run Adjustment(4) Pactual > Pexpected → Pexpected↑ and Uactual< UNR → W↑(5) AS↓ → P ↑ Q↓ (The new AS’ should have Pe=P2 not P0)(6) until Qactual=QFE and Uactual=UNR(7) Pnew>Pold Negative AD shockShort-run Adjustment(1) AD↓→ P↓ Q↓(2) Qactual< QFE → below long-run Q (3) Pactual <Pexpected and Uactual>UNR Long-run Adjustment(4) Pactual <Pexpected → Pexpected↓ and Uactual < UNR → W↓(5) AS↑ → P ↓ Q↑(6) until Qactual=QFE and Uactual=UNR (7) Pnew<Pold (The new AS’ should have Pe=P2 not P0)Positive AS ShockShort-run Adjustment(1) AS ↑→ P↓ Q ↑(2) Qactual> QFE → above long-run Q(3) Pactual <Pexpected and Uactual < UNR Long-run Adjustment(4) Pactual <Pexpected → Pexpected↓ but Uactua<UNR → W ↑(5) if deflationary pressures are not reinforced Pe doesn’t change(5) AS ↓ → P ↑ Q ↓ (keep the (Pe=P0, W) next to AS)(6) until Qactual=QFE and Uactual=UNR (7) Pnew=PoldNegative AS ShockShort-run Adjustment(1) AS ↓→ P ↑ Q ↓(2) Qactual < QFE → below long-run Q(3) Pactual > Pexpected and Uactual>UNR Long-run Adjustment(4) Pactual >Pexpected → Pexpected↑ but Uactual>UNR → W ↓(5) if inflationary pressures are not reinforced Pe doesn’t change(5) AS ↑ → P ↓ Q ↑ (combine 5 and 6 into 5 like +AS shock)(6) until Qactual=QFE and Uactual=UNR (7) Pnew=PoldNegative AS Shock with Accommodation by FEDShort-run Adjustment(1) AS ↓→ P ↑ Q ↓(2) Qactual < QFE → below long-run Q(3) Pactual > Pexpected and Uactual>UNRFed Accommodation(4) MS ↑ to combat recession ↑ → AD ↑(5) AD ↑ → P ↑ Q ↑ (If possible have dotted lines from P1 and QFE move with where the AD and ASSR intersect)(6) if perfect accommodation until Qactual=QFE and Uactual=UNR (7) Pnew>Pold and inflationary expectations build (Phillip’s Curve