Suppose firms become optimistic about futurebusiness conditions and invest heavily in new capitalequipment.a. Draw an aggregate-demand/aggregate-supplydiagram to show the short-run effect of thisoptimism on the economy. Label the new levels ofprices and real output. Explain in words why theaggregate quantity of output supplied changes.b. Now use the diagram from part (a) to show thenew long-run equilibrium of the economy. (Fornow, assume there is no change in the long-runaggregate-supply curve.) Explain in words whythe aggregate quantity of output demanded changesbetween the short run and the long run.c. How might the investment boom affect thelong-run aggregate-supply curve? Explain.

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