Suppose that the policy-makers of a foreign country decide to enact policy that reduces unemployment (at the expense of higher prices) just before an election. At the time of the election, however, the reduction in unemployment is much greater than expected, and the pesky inflation increase never occurs.

The graph illustrates the economy before the government attempts to reduce unemployment. Change the graph to illustrate changes in the economy that could result in lower unemployment without an increase in prices.

Note that LRAS represents long-run aggregate supply, SRAS represents short-run aggregate supply, and AD represents aggregate demand.

The tool available to the policy-makers that would have resulted in a (short-run) decrease in the unemployment rate is an increase in aggregate demand.

Had nothing unexpected happened, unemployment would have fallen in the short run, and the price level would have risen in both the short and long run. However, that bump in inflation never happened, and a greater-than-expected fall in the unemployment rate occurred. The only unexpected shift that could have caused this is a rise in SRAS.

The SRAS curve shift alone would have resulted in lower (short-run) unemployment and less inflation than would have occurred otherwise (or possibly even deflation). An AD shift of the right size, occurring at the same time as the SRAS shift, would have resulted in no change in the inflation rate and even less unemployment. Depending on the relative sizes of the SRAS and AD shifts, an unexpected fall in AD paired with the increase in SRAS could have led to this result as well.