8. Economic fluctuations I The following graph shows the economy in long-run equilibrium at the expected price level of

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8 Economic Fluctuations I The Following Graph Shows The Economy In Long Run Equilibrium At The Expected Price Level Of 1 (30.8 KiB) Viewed 18 times

8 Economic Fluctuations I The Following Graph Shows The Economy In Long Run Equilibrium At The Expected Price Level Of 2 (20.09 KiB) Viewed 18 times

8 Economic Fluctuations I The Following Graph Shows The Economy In Long Run Equilibrium At The Expected Price Level Of 3 (22.23 KiB) Viewed 18 times

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 firms become pessimistic about future business conditions and cut back on investment spending. 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 00 8 40 0 0 200 400 600 800 OUTPUT (Billions of dollars) AS AD 1000 1200 AD AS Windo Windows

Homework (Ch 15) In the short run, the decrease in investment spending associated with business pessimism causes the price level to the price level the natural level of output. The business pessimism will cause the unemployment rate the natural rate of unemployment in the short run. people expected and the quantity of output to 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. During the transition from the short run to the long run, price-level expectations will curve will shift to the and 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

PRICE LEVEL 240 200 160 120 8 200 400 600 800 OUTPUT (Bilions of dollars) AS AD 1000 1200 In the long run, as a result of the business pessimism, the price level, level of output, and the unemployment rate AD AS , the quantity of output the natural rate of unemployment. the natural