3. Economic fluctuations 3. Economic fluctuations IThe following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion.Suppose firms become pessimistic about future business conditions and cut back on investment spending.Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the businesspessimism.PRICE LEVEL240200160120804000200400600800OUTPUT (Billions of dollars)ASAD10001200ADASIn the short run, the decrease in investment spending associated with business pessimism causes the price level topeople expected and the quantity of output tothe price levelthe natural level of output. The business pessimism will cause the unemployment rate people expected and the quantity of output totoAgain, the following graph shows a hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output levelof $600 billion, prior to the decrease in investment spending associated with business pessimism.Along the transition from the short run to the long run, price-level expectations willcurve will shift to the YPRICE LEVELUsing the graph, illustrate the long-run impact of the business pessimism by shifting both the aggregate demand (AD) curve and the short-runaggregate supply (AS) curve in the appropriate directions.2200160the natural level of output. The business pessimism will cause the unemployment ratethe natural rate of unemployment in the short run.84000200400600800OUTPUT (Billions of dollars)AD10001200In the long run, due to the business pessimism, the price leveloutput, and the unemployment ratethe natural rate.ADOASand the▼the quantity of outputthe natural level of

Economic fluctuations are basically vacillations in the level of the public income of a nation…

Answered: Using the graph, shift the short-run…

Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the business pessimism. PRICE LEVEL 240 200 160 120 80 AS AD H AS

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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