The short-run aggregate supply curve, or the SRAS curve, captures the relation between real productionand the price level. As the price level rises, real production is greater. As the price level falls,real production also declines. It is based on resource demand and supply decisions that reflect the expected price level. If the price level turns out as expected, the economy produces its potential output. If the price level exceeds expectations, short-run output exceeds the economy’s potential, creating an expansionary gap. If the price level is below expectations, short-run output falls short of the economy’s potential, creating a recessionary gap.
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