During the transition from the short run to the long run, price level expectations will (remain the same, adjust upward, adjust downward), and the (short-run aggregate supply, aggregate demand) curve will shift to the (right, left). In the long run, as a result of the sharp increase in saving, the price level (remains the same, increases, decreases), the quantity of output (rises above, falls below, returns to) potential output, and the unemployment rate (rises above, falls below, returns to) the natural rate of unemployment. Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and potential output of $300 billion before thedecrease in consumption spending due to the increase in saving.Now, show the long-run impact of the sharp increase in saving by shifting both the aggregate demand (AD) curve and the short-run aggregatesupply (SRAS) curve to the appropriate positions. (Note: Assume that the sharp increase in saving does not cause a change in the economy'sresources, technology, or productivity.)240SRAS200AD180SRAS12080AD40100200300400500600REAL GDP (Billions of dollars)During the transition from the short run to the long run, price level expectations willand thecurve will shift to theIn the long run, as a result of the sharp increase in saving, the price levelthe quantity of outputpotentialoutput, and the unemployment ratethe natural rate of unemployment.PRICE LEVEL

In the long run, when there is an decrease in consumption, it leads to increase in savings which…

Answered: During the transition from the short…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

During the transition from the short run to the long run, price level expectations will (remain the same, adjust upward, adjust downward), and the (short-run aggregate supply, aggregate demand) curve will shift to the (right, left).

In the long run, as a result of the sharp increase in saving, the price level (remains the same, increases, decreases), the quantity of output (rises above, falls below, returns to) potential output, and the unemployment rate (rises above, falls below, returns to) the natural rate of unemployment.

Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and potential output of $300 billion before the
decrease in consumption spending due to the increase in saving.
Now, show the long-run impact of the sharp increase in saving by shifting both the aggregate demand (AD) curve and the short-run aggregate
supply (SRAS) curve to the appropriate positions. (Note: Assume that the sharp increase in saving does not cause a change in the economy's
resources, technology, or productivity.)
240
SRAS
200
AD
180
SRAS
120
80
AD
40
100
200
300
400
500
600
REAL GDP (Billions of dollars)
During the transition from the short run to the long run, price level expectations will
and the
curve will shift to the
In the long run, as a result of the sharp increase in saving, the price level
the quantity of output
potential
output, and the unemployment rate
the natural rate of unemployment.
PRICE LEVEL

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions