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 a stock market boom increases household wealth and causes consumers to spend more. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the stock market boom. 240 AS 200 AD 160 AS 120 80 AD1 40 AD2 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to v the price level people expected and the quantity of output to v the natural level of output. The stock market boom will cause the unemployment rate to v the natural rate of unemployment in the short run. PRICE LEVEL

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 a stock market boom increases household wealth and causes consumers to spend more. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the stock market boom. 240 AS 200 AD 160 AS 120 80 AD1 40 AD2 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to v the price level people expected and the quantity of output to v the natural level of output. The stock market boom will cause the unemployment rate to v the natural rate of unemployment in the short run. PRICE LEVEL

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

I got this type of problem wrong twice already and I am confused on why

During the transition from the short run to the long run, price-level expectations will adjust downward
and the
short-run aggregate supply
curve will shift to the right
Now show the long-run impact of the stock market boom by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS)
curve to the appropriate positions.
240
AS
200
AD
160
AS
120
80
AD
40
200
400
600
800
1000
1200
OUTPUT (Billions of dollars)
In the long run, as a result of the stock market boom, the price level
the quantity of output
the natural
level of output, and the unemployment rate
the natural rate of unemployment.
PRICE LEVEL

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 a stock market boom increases household wealth and causes consumers to spend more.
Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the stock market boom.
240
AS
200
AD
160
AS
120
80
AD1
40
AD2
200
400
600
800
1000
1200
OUTPUT (Billions of dollars)
In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to
the price
level people expected and the quantity of output to
the natural level of output. The stock market boom will cause the unemployment
rate to
the natural rate of unemployment in the short run.
PRICE LEVEL

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