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.240AS200AD160AS12080AD4020040060080010001200OUTPUT (Billions of dollars)In the long run, as a result of the stock market boom, the price level, the quantity of outputthe naturallevel of output, and the unemployment ratethe natural rate of unemployment.PRICE LEVEL 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.240AS200AD160AS12080AD4020040060080010001200OUTPUT (Billions of dollars)In the short run, the increase in consumption spending associated with the stock market expansion causes the price level tothe pricelevel people expected and the quantity of output tothe natural level of output. The stock market boom will cause the unemploymentrate tothe natural rate of unemployment in the short run.Again, 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,before the increase in consumption spending associated with the stock market expansion.During the transition from the short run to the long run, price-level expectations willand thecurve will shift to thePRICE LEVEL

In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to level people expected and the quantity of output to the price the natural level of output. The stock market boom will cause the unemployment rate to the natural rate of unemployment in the short run. Again, 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 bilion, before the increase in consumption spending associated with the stock market expansion. During the transition from the short run to the long run, price-level expectations will and the curve will shift to the

In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to level people expected and the quantity of output to the price the natural level of output. The stock market boom will cause the unemployment rate to the natural rate of unemployment in the short run. Again, 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 bilion, before the increase in consumption spending associated with the stock market expansion. During the transition from the short run to the long run, price-level expectations will and the curve will shift to the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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