Suppose the economy is in a long-run equilibrium, as shown in the following graph. Now suppose that firms become pessimistic about future business conditions and decide to cut back on investment spending, resulting in a fall in aggregate demand. Use your diagram to show what happens to output and the price level in the short run. LRAS Aggregate Supply Aggregate Demand Aggregate Supply LRAS Aggregate Demand Quantity of Output As a result of this change, the unemployment rate Use the sticky-wage theory of aggregate supply to think about what will happen to output and the price level in the long run (assuming there is no change in policy). Price Level

Suppose the economy is in a long-run equilibrium, as shown in the following graph. Now suppose that firms become pessimistic about future business conditions and decide to cut back on investment spending, resulting in a fall in aggregate demand. Use your diagram to show what happens to output and the price level in the short run. LRAS Aggregate Supply Aggregate Demand Aggregate Supply LRAS Aggregate Demand Quantity of Output As a result of this change, the unemployment rate Use the sticky-wage theory of aggregate supply to think about what will happen to output and the price level in the long run (assuming there is no change in policy). Price Level

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

I don't quite understand what is asking of the change that will occur in the long run

Suppose the economy is in a long-run equilibrium, as shown in the following graph.
Now suppose that firms become pessimistic about future business conditions and decide to cut back on investment spending, resulting in a fall in
aggregate demand.
Use your diagram to show what happens to output and the price level in the short run.
LRAS
Aggregate Supply
Aggregate Demand
Aggregate Supply
LRAS
Aggregate Demand
Quantity of Output
As a result of this change, the unemployment rate
Use the sticky-wage theory of aggregate supply to think about what will happen to output and the price level in the long run (assuming there
no
change in policy).
On the graph, illustrate the change that will occur in the long run.
Price Level

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