The graph shows the economy in long-run equilibrium

Reference no: EM13870249

The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural rate 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 short-run aggregate demand (AD) curve to show the short-run impact of the increase in government spending.

In the short run, the increase in government spending on infrastructure causes the price level to ______  the price level people expected and the quantity of output to _______  the natural rate of output. The increase in government spending 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 rate 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 ______  and the short-run  _______  curve will shift to the __________  .

In the long run, as a result of the increase in government spending, the price level _______  , the quantity of output_______  the natural rate of output, and the unemployment rate  _______ the natural rate of unemployment.

Reference no: EM13870249

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