Effect of Aggregate Demand and Supply Shocks on Output and Inflation Rate in Pakistan

This study investigates the Effect of Aggregate Demand and Supply Shocks on Output and Inflation Rate in Pakistan.Data were collected from various secondary sources, i.e. Annual reports, magazines and newspapers. Quah approach The place aggravator interest also aggravator supply shocks would not associated. Those impacts of identified shocks is then estimated on GDP and inflation rate. Data of GDP and general price level for Pakistan economy over the period 1974 to 2012 have been used for the purpose. Results show that positive supply shock has positive effect on GDP while negative on prices. On the other hand aggregate demand shocks positively affect prices but the effect on aggregate demand is negative. The negative response of economic activity to aggregate demand shock may be due to the “Expansionary Fiscal Contraction”