# 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 governmentspending.240AS200AD160AS12080AD4020040060080010001200OUTPUT (Billions of dollars)In the short run, the increase in government spending on infrastructure causes the price level tothe price level people expected andthe quantity of output tothe natural level of output. The increase in government spending will cause the unemployment rate 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.PRICE LEVEL During the transition from the short run to the long run, price-level expectations willand thecurve 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.240AS200AD160AS12080AD4020040060080010001200OUTPUT (Billions of dollars)In the long run, as a result of the increase in government spending, the price levelthe quantity of outputthe natural rate of unemployment.the natural level of output, and the unemployment ratePRICE LEVEL

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Asked Feb 11, 2020
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## 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.
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