In the short run, the decrease in consumption spending due to the increase in saving shifts the aggregate (demand, supply) curve to the (left, right), causing the price level to (fall below, rise above) the price level people expected, and the quantity of output to (fall below, rise above) potential output. The sharp increase in saving will cause the unemployment rate to (fall below, rise above) the natural rate of unemployment in the short run. 7. Economic fluctuations IThe following graph shows the economy in long-run equilibrium at an expected price level of 120 and potential output of $300 billion. Supposehouseholds suddenly begin to spend less and save more to increase saving for retirement.Shift the short-run aggregate supply (SRAS) curve or the aggregate demand (AD) curve to show the short-run impact of the sharp increase insaving on the graph.Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps backto its original position, just drag it a little farther.240SRAS200AD160SRAS12080AD40100200300400500600REAL GDP (Billions of dollars)In the short run, the decrease in consumption spending due to the increase in saving shifts the aggregatecurve to thecausing the price level tothe price level people expected, and the quantity of output topotential output. The sharpincrease in saving will cause the unemployment rate tothe natural rate of unemployment in the short run.PRICE LEVEL

Aggregate demand (AD) is the sum total amount of commodities and services demanded in an economy at…

Answered: In the short run, the decrease in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In the short run, the decrease in consumption spending due to the increase in saving shifts the aggregate (demand, supply) curve to the (left, right), causing the price level to (fall below, rise above) the price level people expected, and the quantity of output to (fall below, rise above) potential output. The sharp increase in saving will cause the unemployment rate to (fall below, rise above) the natural rate of unemployment in the short run.

7. Economic fluctuations I
The following graph shows the economy in long-run equilibrium at an expected price level of 120 and potential output of $300 billion. Suppose
households suddenly begin to spend less and save more to increase saving for retirement.
Shift the short-run aggregate supply (SRAS) curve or the aggregate demand (AD) curve to show the short-run impact of the sharp increase in
saving on the graph.
Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back
to its original position, just drag it a little farther.
240
SRAS
200
AD
160
SRAS
120
80
AD
40
100
200
300
400
500
600
REAL GDP (Billions of dollars)
In the short run, the decrease in consumption spending due to the increase in saving shifts the aggregate
curve to the
causing the price level to
the price level people expected, and the quantity of output to
potential output. The sharp
increase in saving will cause the unemployment rate to
the natural rate of unemployment in the short run.
PRICE LEVEL

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