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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 business pessimism. PRICE LEVEL 240 200 160 120 80 AS AD H AS

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 business pessimism. PRICE LEVEL 240 200 160 120 80 AS AD H AS

Principles of Economics, 7th Edition (MindTap Course List)
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter33: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
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3. Economic fluctuations
3. Economic fluctuations I 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 firms become pessimistic about future business conditions and cut back on investment spending. 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 business pessimism. PRICE LEVEL 240 200 160 120 80 40 0 0 200 400 600 800 OUTPUT (Billions of dollars) AS AD 1000 1200 AD AS 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 price level the natural level of output. The business pessimism will cause the unemployment rate
Transcribed Image Text:3. Economic fluctuations I 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 firms become pessimistic about future business conditions and cut back on investment spending. 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 business pessimism. PRICE LEVEL 240 200 160 120 80 40 0 0 200 400 600 800 OUTPUT (Billions of dollars) AS AD 1000 1200 AD AS 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 price level the natural level of output. The business pessimism will cause the unemployment rate
people expected and the quantity of output to to 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 investment spending associated with business pessimism. Along the transition from the short run to the long run, price-level expectations will curve will shift to the Y PRICE LEVEL Using the graph, illustrate the long-run impact of the business pessimism by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions. 2 200 160 the natural level of output. The business pessimism will cause the unemployment rate the natural rate of unemployment in the short run. 8 40 0 0 200 400 600 800 OUTPUT (Billions of dollars) AD 1000 1200 In the long run, due to the business pessimism, the price level output, and the unemployment rate the natural rate. AD O AS and the ▼ the quantity of output the natural level of
Transcribed Image Text:people expected and the quantity of output to to 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 investment spending associated with business pessimism. Along the transition from the short run to the long run, price-level expectations will curve will shift to the Y PRICE LEVEL Using the graph, illustrate the long-run impact of the business pessimism by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions. 2 200 160 the natural level of output. The business pessimism will cause the unemployment rate the natural rate of unemployment in the short run. 8 40 0 0 200 400 600 800 OUTPUT (Billions of dollars) AD 1000 1200 In the long run, due to the business pessimism, the price level output, and the unemployment rate the natural rate. AD O AS and the ▼ the quantity of output the natural level of
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