8. Economic fluctuations IThe 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 the government increases spending on building and repairing highways, bridges, and ports.Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the increase in governmentspending.240AS20016012080400the price level people expected andthe natural level of output. The increase in government spending will cause the unemployment rate toPRICE LEVELAD| 2 | 2020040060080010001200OUTPUT (Billions of dollars)In the short run, the increase in government spending on infrastructure causes the price level tothe quantity of output tothe natural rate of unemployment in the short run. Again, 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,before the increase in government spending on infrastructure.and theDuring the transition from the short run to the long run, price-level expectations willcurve will shift to theNow show the long-run impact of the increase in government spending by shifting both the aggregate demand (AD) curve and the short-runaggregate supply (AS) curve to the appropriate positions.240AS20016012080AD400, the quantity of outputPRICE LEVEL2 | 2020040060080010001200OUTPUT (Billions of dollars)In the long run, as a result of the increase in government spending, the price levelthe natural level of output, and the unemployment ratethe natural rate of unemployment.

Aggregate demand is a sum of consumption spending, investment spending, government social and net…

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 the government increases spending on building and repairing highways, bridges, and ports. 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 AS 200 160 120 80 40 0 the price level people expected and the natural level of output. The increase in government spending will cause the unemployment rate to PRICE LEVEL AD 0 2 0 2 0 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to the natural rate of unemployment in the short run.

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 the government increases spending on building and repairing highways, bridges, and ports. 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 AS 200 160 120 80 40 0 the price level people expected and the natural level of output. The increase in government spending will cause the unemployment rate to PRICE LEVEL AD 0 2 0 2 0 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to the natural rate of unemployment in the short run.

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

Problem 5PA

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Question

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 the government increases spending on building and repairing highways, bridges, and ports.
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
AS
200
160
120
80
40
0
the price level people expected and
the natural level of output. The increase in government spending will cause the unemployment rate to
PRICE LEVEL
AD
| 2 | 2
0
200
400
600
800
1000
1200
OUTPUT (Billions of dollars)
In the short run, the increase in government spending on infrastructure causes the price level to
the quantity of output to
the natural rate of unemployment in the short run.

Again, 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,
before the increase in government spending on infrastructure.
and the
During the transition from the short run to the long run, price-level expectations will
curve will shift to the
Now show 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 to the appropriate positions.
240
AS
200
160
120
80
AD
40
0
, the quantity of output
PRICE LEVEL
2 | 2
0
200
400
600
800
1000
1200
OUTPUT (Billions of dollars)
In the long run, as a result of the increase in government spending, the price level
the natural level of output, and the unemployment rate
the natural rate of unemployment.

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