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 increase in government spending. PRICE LEVEL 240 200 160 120 + 80 40 0 0 200 400 600 800 OUTPUT (Billions of dollars) AS AD 1000 1200 AD 0 AS In the short run, the increase in government spending on infrastructure causes the price level to he quantity of output to the price level people expected and the natural level of output. The increase in government spending will cause the unemployment rate to the natural rate of unemployment in the short run. gain, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level f $600 billion, prior to the increase in government spending on infrastructure. long the transition from the short run to the long run, price-level expectations will THE TO and the
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 increase in government spending. PRICE LEVEL 240 200 160 120 + 80 40 0 0 200 400 600 800 OUTPUT (Billions of dollars) AS AD 1000 1200 AD 0 AS In the short run, the increase in government spending on infrastructure causes the price level to he quantity of output to the price level people expected and the natural level of output. The increase in government spending will cause the unemployment rate to the natural rate of unemployment in the short run. gain, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level f $600 billion, prior to the increase in government spending on infrastructure. long the transition from the short run to the long run, price-level expectations will THE TO and the
Chapter20: Aggregate Demand And Supply
Section: Chapter Questions
Problem 8SQP
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Question
Please answer everything in the photos including the graph.
Transcribed Image Text: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 the government increases spending on building and repairing highways, bridges, and ports.
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 increase
in government spending.
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 increase in government spending on infrastructure causes the price level to
the quantity of output to
the price level people expected and
the natural level of output. The increase in government spending 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 increase in government spending on infrastructure.
Along the transition from the short run to the long run, price-level expectations will
curve will shift to the
and the
Transcribed Image Text:Using the graph, illustrate the long-run impact of the increase in government spending by shifting both the aggregate demand (AD) curve and the
short-run aggregate supply (AS) curve in the appropriate directions.
PRICE LEVEL
240
200
160
120
80
40
0
0
200
+
600
400
800
OUTPUT (Billions of dollars)
AS
AD
1000
1200
O
AD
*****
AS
In the long run, due to the increase in government spending, the price level
natural level of output, and the unemployment rate
the natural rate.
the quantity of output
I
the
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