# 8. Economic Fluctuations IThe 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 the government increases spending on building and repairing highways, bridges, and ports.**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.**![Graph](graph-image-placeholder)In the graph, the horizontal axis represents "Output (Billions of dollars)" ranging from 0 to 1200. The vertical axis represents the "Price Level" ranging from 0 to 260. The graph features two intersecting lines:- **AS (Aggregate Supply)**: This line is upward sloping, indicating that as the price level increases, the output also increases.- **AD (Aggregate Demand)**: This line is downward sloping, indicating that as the price level decreases, the output increases.**Explanation:**- In the short run, the increase in government spending on infrastructure causes the price level to (blank) the price level people expected and the quantity of output to (blank) the natural level of output. The increase in government spending will cause the unemployment rate to (blank) 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 billion, before the increase in government spending on infrastructure.**During the transition from the short run to the long run, price-level expectations will (blank) and the (blank) curve will shift to the (blank).**

Answer: Introduction: Due to an increase in government spending on building and repairing highways,…

In the short run, the increase in government spending on infrastructure causes the price level to the price level people expected and the quantity of output to natural level of output. The increase in government spending will cause the unemployment rate to the 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 billion, before the increase in government spending on infrastructure. 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 government spending on infrastructure causes the price level to the price level people expected and the quantity of output to natural level of output. The increase in government spending will cause the unemployment rate to the 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 billion, before the increase in government spending on infrastructure. 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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