the price level In the short run, the decrease in investment spending associated with business pessimism causes the price level to people expected and the quantity of output to the natural level of output. The business pessimism will cause the unemployment rate the natural rate of unemployment in the short run. to 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 investment spending associated with business pessimism. 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 business pessimism by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve to the appropriate positions. 240 AS AD ICE LEVEL 200 160 120 10 AS

the price level In the short run, the decrease in investment spending associated with business pessimism causes the price level to people expected and the quantity of output to the natural level of output. The business pessimism will cause the unemployment rate the natural rate of unemployment in the short run. to 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 investment spending associated with business pessimism. 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 business pessimism by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve to the appropriate positions. 240 AS AD ICE LEVEL 200 160 120 10 AS

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter10: Bringing In The Supply Side: Unemployment And Inflation?

Section: Chapter Questions

Problem 3TY

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