Final answer:
A rightward shift of SRAS increases equilibrium quantity and decreases price level, while a leftward shift reduces quantity and increases price level. Stagflation combines economic stagnation with high inflation. Factors such as consumer confidence and government spending can shift AD rightward or leftward, impacting overall demand.
Step-by-step explanation:
The shift of the Short-Run Aggregate Supply (SRAS) curve to the right leads to a higher equilibrium quantity and a lower price level. This happens because as the SRAS shifts right, it indicates an increase in productivity or a positive supply shock, making the economy capable of producing more goods and services without increasing prices. Conversely, a shift of SRAS to the left, perhaps due to higher prices for key inputs, results in a reduced quantity of output and a higher price level. In this case, the cost of production rises, which lessens the amount businesses are able to supply at any given price level, leading to a contraction in supply.
Stagflation is a situation where the economy experiences stagnant growth or recession, coupled with high inflation. It is a challenging scenario for policymakers because the typical tools to combat inflation, such as tightening monetary policy, can further inhibit economic growth.
Several factors can shift Aggregate Demand (AD) either to the right or to the left. Increased consumer confidence, higher government spending, and decreased taxes can shift AD to the right, indicating a higher overall demand for goods and services. On the other hand, factors like decreased consumer confidence, lower government spending, and higher taxes tend to shift AD to the left, reflecting reduced overall demand.