Now show the long-run impact of the stock market boom by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS)curve to the appropriate positions.240AS200AD160AS12080AD4020040060080010001200OUTPUT (Billions of dollars)In the long run, as a result of the stock market boom, the price level, the quantity of outputthe naturallevel of output, and the unemployment ratethe natural rate of unemployment.PRICE LEVEL 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.240AS200AD160AS12080AD4020040060080010001200OUTPUT (Billions of dollars)In the short run, the increase in consumption spending associated with the stock market expansion causes the price level tothe pricelevel people expected and the quantity of output tothe natural level of output. The stock market boom will cause the unemploymentrate 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 consumption spending associated with the stock market expansion.During the transition from the short run to the long run, price-level expectations willand thecurve will shift to thePRICE LEVEL

A stock market is a market place where stocks of companies are traded, including securities listed…

In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to level people expected and the quantity of output to the price the natural level of output. The stock market boom 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 bilion, before the increase in consumption spending associated with the stock market expansion. During the transition from the short run to the long run, price-level expectations will and the curve will shift to the

In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to level people expected and the quantity of output to the price the natural level of output. The stock market boom 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 bilion, before the increase in consumption spending associated with the stock market expansion. During the transition from the short run to the long run, price-level expectations will and the curve will shift to the

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter20: Aggregate Demand And Supply

Section: Chapter Questions

Problem 3SQP

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The following questions relate to long-run macroeconomic equilibrium and the stock market boom. Assume that a hypothetical economy is at long-run macroeconomic equilibrium, with full employment and stable prices. Suddenly the stock market prices increase much more than expected, increasing investor’s wealth, and causing a short-term period of unusually increased optimism about the future of the economy. Only need help with Subparts 4-5 In the short-run, will the AS curve or the AD curve shift, and in which direction will it shift? In the short-run, what will happen to the price level and quantity of output (real GDP)? Explain what, if any, impact will there likely be on workers’ wages, and the reasons for this impact. In the long-run, which curve will shift due to the change in wages and price expectations created by the stock market boom? In which direction will it shift? When the economy returns to its long-term output level, how will the new long-run macroeconomic equilibrium…
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