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 sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the housing market slump. (2) 240 AS 200 AD 140 AS 120 AD 40 200 400 600 800 1000 1200 OUTPUT (BIlons of dolars) In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to • the price level people expected and the quantity of output to v the natural level of output. The housing market slump will cause the unemployment rate to v 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 decrease in consumption spending associated with the housing market contraction. During the transition from the short run to the long run, price-level expectations will v and the curve will shift to the Now show the long-run impact of the housing market slump by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve to the appropriate positions. 240 AS 200 AD 160 AS 120 ab AD 40 200 400 600 800 1000 1200 OUTPUT (BIlons of dollars) In the long run, as a result of the housing market slump, the price level the quantity of output v the natural level of output, and the unemployment rate v the natural rate of unemployment.
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 sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the housing market slump. (2) 240 AS 200 AD 140 AS 120 AD 40 200 400 600 800 1000 1200 OUTPUT (BIlons of dolars) In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to • the price level people expected and the quantity of output to v the natural level of output. The housing market slump will cause the unemployment rate to v 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 decrease in consumption spending associated with the housing market contraction. During the transition from the short run to the long run, price-level expectations will v and the curve will shift to the Now show the long-run impact of the housing market slump by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve to the appropriate positions. 240 AS 200 AD 160 AS 120 ab AD 40 200 400 600 800 1000 1200 OUTPUT (BIlons of dollars) In the long run, as a result of the housing market slump, the price level the quantity of output v the natural level of output, and the unemployment rate v the natural rate of unemployment.
Principles of Economics, 7th Edition (MindTap Course List)
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Author:N. Gregory Mankiw
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Chapter33: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
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Transcribed Image Text: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 sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less.
Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the housing market slump.
(2)
240
AS
200
AD
140
AS
120
80
AD
40
200
400
800
1000
1200
OUTPUT (BIlons of dollars)
In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to
* the
price level people expected and the quantity of output to
v the natural level of output. The housing market slump will cause the
unemployment rate 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 decrease in consumption spending associated with the housing market contraction.
During the transition from the short run to the long run, price-level expectations will
v and
the
- curve will shift to the
Now show the long-run impact of the housing market slump by shifting both the aggregate demand (AD) curve and the short-run aggregate supply
(AS) curve to the appropriate positions.
240
AS
200
AD
160
AS
120
ab
AD
40
200
400
800
1000
1200
OUTPUT (BIlons of dollars)
In the long run, as a result of the housing market slump, the price level
the quantity of output
v the natural
level of output, and the unemployment rate
v the natural rate of unemployment.
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