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 willand thecurve will shift to theNow show the long-run impact of the increase in government spending by shifting both the aggregate demand (AD) curve and the short-runaggregate supply (AS) curve to the appropriate positions.240AS200AD160AS12080AD4020040060080010001200OUTPUT (Billions of dollars)In the long run, as a result of the increase in government spending, the price levelthe quantity of outputthe natural level of output, and the unemployment ratethe natural rate of unemployment.PRICE LEVEL 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 governmentspending.240AS200AD160AS12080AD4020040060080010001200OUTPUT (Billions of dollars)In the short run, the increase in government spending on infrastructure causes the price level tothe price level people expected andthe quantity of output tothe natural level of output. The increase in government spending will cause the unemployment rate 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 government spending on infrastructure.During the transition from the short run to the long run, price-level expectations willand thecurve will shift to thePRICE LEVEL

The economy is in long-run equilibrium initially at the price level of $120 and an output level of…

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 curve will shift to the and the Now show the long-run impact of the increase in government spending by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve to the appropriate positions. 240 AS 200 AD 160 AS 120 80 AD 40 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the long run, as a result of the increase in government spending, the price level the quantity of output the natural level of output, and the unemployment rate the natural rate of unemployment. PRICE LEVEL