8. Economic fluctuations IThe 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 increasein government spending.PRICE LEVEL2402001601208040O0200400600800OUTPUT (Billions of dollars)ASAD10001200ADAS(?)the price level people expected andthe natural level of output. The increase in government spending will cause the unemployment rate tothe natural rate of unemployment in the short run.In the short run, the increase in government spending on infrastructure causes the price level tothe quantity of output toAgain, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output levelof $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 willcurve will shift to theand the

AD(aggregate demand) is the sum of C(consumption), I( investment), G(government spending) and net…

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.

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.

Principles of Economics (MindTap Course List)

8th Edition

ISBN:9781305585126

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter33: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 5PA

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Question

8. 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 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
O
0
200
400
600
800
OUTPUT (Billions of dollars)
AS
AD
1000
1200
AD
AS
(?)
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.
In the short run, the increase in government spending on infrastructure causes the price level to
the quantity of output 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 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

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