8. Economic fluctuations I The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose a stock market boom increases household wealth and causes consumers to spend more. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the stock market boom. 240 AS 200 AD 160 AS 120 80 AD1 40 AD2 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to v the price level people expected and the quantity of output to v the natural level of output. The stock market boom will cause the unemployment rate to v the natural rate of unemployment in the short run. PRICE LEVEL

8. Economic fluctuations I The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $600 billion. Suppose a stock market boom increases household wealth and causes consumers to spend more. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the stock market boom. 240 AS 200 AD 160 AS 120 80 AD1 40 AD2 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to v the price level people expected and the quantity of output to v the natural level of output. The stock market boom will cause the unemployment rate to v the natural rate of unemployment in the short run. PRICE LEVEL

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter20: Monetary Policy

Section20.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 3SQP

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