? G 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 AS 160 120 80 40 0 0 200 400 600 AD 800 1000 1200 OUTPUT (Billions of dollars) ŏ AD 一 AS (?) In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to 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. 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 ? Using the graph, illustrate the long-run impact of the increase in government spending by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions. PRICE LEVEL 240 200 160 120 80 -- 40 0 0 200 400 600 AS AD AD 800 1000 1200 OUTPUT (Billions of dollars) In the long run, due to the increase in government spending, the price level natural level of output, and the unemployment rate AS (?) D the quantity of output) the the natural rate.
? G 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 AS 160 120 80 40 0 0 200 400 600 AD 800 1000 1200 OUTPUT (Billions of dollars) ŏ AD 一 AS (?) In the short run, the increase in government spending on infrastructure causes the price level to the quantity of output to 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. 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 ? Using the graph, illustrate the long-run impact of the increase in government spending by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions. PRICE LEVEL 240 200 160 120 80 -- 40 0 0 200 400 600 AS AD AD 800 1000 1200 OUTPUT (Billions of dollars) In the long run, due to the increase in government spending, the price level natural level of output, and the unemployment rate AS (?) D the quantity of output) the the natural rate.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:?
G
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
AS
160
120
80
40
0
0
200
400
600
AD
800
1000
1200
OUTPUT (Billions of dollars)
ŏ
AD
一
AS
(?)
In the short run, the increase in government spending on infrastructure causes the price level to
the quantity of output to
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.
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
Transcribed Image Text:?
Using the graph, illustrate the long-run impact of the increase in government spending by shifting both the aggregate demand (AD) curve and the
short-run aggregate supply (AS) curve in the appropriate directions.
PRICE LEVEL
240
200
160
120
80
--
40
0
0
200
400
600
AS
AD
AD
800
1000
1200
OUTPUT (Billions of dollars)
In the long run, due to the increase in government spending, the price level
natural level of output, and the unemployment rate
AS
(?)
D
the quantity of output)
the
the natural rate.
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