The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level o

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The Following Graph Shows The Economy In Long Run Equilibrium At The Expected Price Level Of 120 And The Natural Level O 1 (43.29 KiB) Viewed 53 times

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 firms become pessimistic about future business conditions and cut back on investment spending. Shift the shart-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the business pessimisam. Ⓒ 100 X AD 400 000 100 OUTPUT (B of dar) PRICE LEVEL & 200 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 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 decrease in investment spending associated with business pessimism 200 During the transition from the short run to the long run, price-level expectations will curve will shift to the 240 200 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. B 8 200 фефе the price level the natural level of output. The business pessimism will cause the unemployment rate 000 OUTPUT(Bofdlar) 100 AD In the long run, as a result of the business pessimism, the price level_ level of output, and the unemployment rate AD (?) and the the quantity of output the natural rate of unemployment. the matural