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 households suddenly begin to spend less and save more in order to increase saving for retirement. 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 sharp increase in saving. PRICE LEVEL 240 200 160 120 80 8 0 200 400 600 800 OUTPUT (Billions of dollars) AS AD 1000 1200 ģ 4 AS ? the price level In the short run, the decrease in consumption spending associated with the increase in saving causes the price level to people expected and the quantity of output to the natural level of output. The sharp increase in saving will cause the unemployment rate to the natural rate of unemployment in the short run. 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 decrease in consumption spending associated with the increase in saving. Along the transition from the short run to the long run, price-level expectations will curve will shift to the. and the
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 households suddenly begin to spend less and save more in order to increase saving for retirement. 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 sharp increase in saving. PRICE LEVEL 240 200 160 120 80 8 0 200 400 600 800 OUTPUT (Billions of dollars) AS AD 1000 1200 ģ 4 AS ? the price level In the short run, the decrease in consumption spending associated with the increase in saving causes the price level to people expected and the quantity of output to the natural level of output. The sharp increase in saving will cause the unemployment rate to the natural rate of unemployment in the short run. 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 decrease in consumption spending associated with the increase in saving. Along the transition from the short run to the long run, price-level expectations will curve will shift to the. and the
Chapter16: Macro Policy Debate: Active Or Passive?
Section: Chapter Questions
Problem 2.3P
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