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Slide 1

The original equilibrium (E0), at an output level of 50 and a price level of 120, happens at the intersection of the aggregate demand curve (AD0) and the short-run aggregate supply curve (AS0). 

The output at E0 is equal to potential GDP. 

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Aggregate demand shifts left from AD0 to AD1.

The new equilibrium is at E1, with a lower output level of 45 and downward pressure on the price level of 115.