Within the AD-AS model, a phenomenon known as stagflation is best represented by a shift in which curve, and with what consequence for the short-run equilibrium?

Solution: · Stagflation is characterized by the simultaneous occurrence of stagnation (falling output/GDP) and inflation (rising prices). · This outcome is typically caused by a negative supply shock (e.g., a sudden increase in oil prices, wage demands, or natural disasters), which makes production more expensive at every price level. · SRAS Shift: A negative supply shock shifts the Short-Run Aggregate Supply (SRAS) curve to the left. · Equilibrium Effect: This shift causes the price level to rise (inflation) and the level of output to fall (stagnation/recession).