The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $300 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. 240 AS 200 AD 160 AS 80 AD 40 100 200 300 400 500 600 OUTPUT (Billions of dollars) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to the price level people expected and the quantity of output to ▼ 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 $300 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 will and the curve will shift to the 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. 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 $300 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. 240 AS 200 AD 160 AS 80 AD 40 100 200 300 400 500 600 OUTPUT (Billions of dollars) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to the price level people expected and the quantity of output to ▼ 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 $300 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 will and the curve will shift to the 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. PRICE LEVEL
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Both pictures are one question
Transcribed Image Text:The graph illustrates the long-run impact of a stock market boom by showing shifts in the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve.
- **AD Curve (Blue Line):** This downward-sloping line represents the aggregate demand in the economy. It typically shifts due to changes in consumer confidence, investment spending, government policy, or net exports.
- **AS Curve (Orange Line):** This upward-sloping line illustrates the short-run aggregate supply, which can shift due to changes in production costs, available technology, or input prices.
**Axes:**
- **Y-axis:** Represents the price level (0 to 240).
- **X-axis:** Represents output in billions of dollars (0 to 600).
**Labels:**
- "AS" corresponds to the aggregate supply curve.
- "AD" corresponds to the aggregate demand curve.
Below the graph, a prompt asks about the long-run effects of the stock market boom:
- "In the long run, as a result of the stock market boom, the price level __________, the quantity of output __________ the natural level of output, and the unemployment rate __________ the natural rate of unemployment."
Selectable choices fill in these blanks to complete the analysis of the economic impact.
Transcribed Image Text:Certainly! Below is the transcription designed for an educational website:
---
### 8. Economic Fluctuations I
The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $300 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.**
#### Graph Explanation
- **Axes:**
- The vertical axis represents the **Price Level**, ranging from 0 to 240.
- The horizontal axis represents the **Output** in billions of dollars, ranging from 0 to 600.
- **Curves:**
- **AD (Aggregate Demand) Curve:** Downward sloping curve colored in orange. It shows that as the price level decreases, the quantity of output demanded increases.
- **AS (Aggregate Supply) Curve:** Upward sloping curve colored in blue. It illustrates that as the price level rises, the quantity of output supplied increases.
#### Text Below the Graph
In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to __________ the price level people expected and the quantity of output to __________ 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 $300 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 will _______________ and the __________ curve will shift to the __________.
**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.**
---
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education