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8. Economic fluctuations I The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose the government Increases spending on building and repairing highways, bridges, and ports. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the Increase in government spending. 240 200 160 120 PRICE LEVEL 80 40 0 240 200 0 160 120 200 40 In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to 0 400 600 800 OUTPUT (Billions of dollars) Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to the increase in government spending on infrastructure. Along the transition from the short run to the long run, price-level expectations will curve will shift to the 0 AS AD 1000 Using the graph, illustrate the long-run impact of the Increase in government spending by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions. 200 400 600 800 OUTPUT (Billions of dollars) 1200 the price level people expected and ▼ the natural level of output. The Increase in government spending will cause the unemployment rate to the natural rate of unemployment in the short run. AD AS AS AD 1000 1200 (?) 4 2 4 2 -O In the long run, due to the increase in government spending, the price level natural level of output, and the unemployment rate (?) and the the natural rate. ✓, the quantity of output the

8. Economic fluctuations I The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose the government Increases spending on building and repairing highways, bridges, and ports. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the Increase in government spending. 240 200 160 120 PRICE LEVEL 80 40 0 240 200 0 160 120 200 40 In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to 0 400 600 800 OUTPUT (Billions of dollars) Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to the increase in government spending on infrastructure. Along the transition from the short run to the long run, price-level expectations will curve will shift to the 0 AS AD 1000 Using the graph, illustrate the long-run impact of the Increase in government spending by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions. 200 400 600 800 OUTPUT (Billions of dollars) 1200 the price level people expected and ▼ the natural level of output. The Increase in government spending will cause the unemployment rate to the natural rate of unemployment in the short run. AD AS AS AD 1000 1200 (?) 4 2 4 2 -O In the long run, due to the increase in government spending, the price level natural level of output, and the unemployment rate (?) and the the natural rate. ✓, the quantity of output the

Principles of Economics, 7th Edition (MindTap Course List)
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter33: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
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8. Economic fluctuations I The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose the government Increases spending on building and repairing highways, bridges, and ports. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the Increase in government spending. 240 200 160 120 PRICE LEVEL 80 40 0 240 200 0 160 120 200 40 In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to 0 400 600 800 OUTPUT (Billions of dollars) Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to the increase in government spending on infrastructure. Along the transition from the short run to the long run, price-level expectations will curve will shift to the 0 AS AD 1000 Using the graph, illustrate the long-run impact of the Increase in government spending by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions. 200 400 600 800 OUTPUT (Billions of dollars) 1200 the price level people expected and ▼ the natural level of output. The Increase in government spending will cause the unemployment rate to the natural rate of unemployment in the short run. AD AS AS AD 1000 1200 (?) 4 2 4 2 -O In the long run, due to the increase in government spending, the price level natural level of output, and the unemployment rate (?) and the the natural rate. ✓, the quantity of output the
Transcribed Image Text:8. Economic fluctuations I The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose the government Increases spending on building and repairing highways, bridges, and ports. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the Increase in government spending. 240 200 160 120 PRICE LEVEL 80 40 0 240 200 0 160 120 200 40 In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to 0 400 600 800 OUTPUT (Billions of dollars) Again, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to the increase in government spending on infrastructure. Along the transition from the short run to the long run, price-level expectations will curve will shift to the 0 AS AD 1000 Using the graph, illustrate the long-run impact of the Increase in government spending by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions. 200 400 600 800 OUTPUT (Billions of dollars) 1200 the price level people expected and ▼ the natural level of output. The Increase in government spending will cause the unemployment rate to the natural rate of unemployment in the short run. AD AS AS AD 1000 1200 (?) 4 2 4 2 -O In the long run, due to the increase in government spending, the price level natural level of output, and the unemployment rate (?) and the the natural rate. ✓, the quantity of output the
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