1. aggregate supply/aggregate demand 2. left/right 3. fall below/rise above 4. f

Question

1. aggregate supply/aggregate demand

2. left/right

3. fall below/rise above

4. fall below/rise above

5. increase/decrease

6.adjust upward/adjust downward/remain the same

7. aggregate demand/short-run aggregate supply

8. left/right

9. increase/decrease/remains the same

10. rises above/falls below/return to

5. Economic fluctuations Aa Aa The following graph shows the economy in long-run equilibrium at the expected price level of 120 and potential output of $300 billion. Suppose a sudden an aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the housing market slump ction in the housing market reduces the value of homes and causes consumers to spend less. Shift the short-run Tool fip: Click and drag one or both of the curves. Curves will snap into position, so if you try to move a curve and it snaps back to its original positio ttle farther PRICE LEVEL 240 AS 200 160 120 + 80 40 AD 100 200 300 400 500 600 REAL GDP (Billions of dollars] In the short run, the decrease in consumption spending associated with the housing market contraction shifts the curve to the , causing the price level to potential output. The housing market slu the price level people expected and the quantity of output to ill cause the unemployment rate to Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and potential output of $300 billion before the decrease in consumption spending associated with the housing market contraction. Now, show the long-run impact of the housing market slump by shifting both the short-run aggregate demand (AD) curve and the short-run aggregate supply (AS) curve to the appropriate positions. (Note: Assume that the housing market slump does not cause a change in the economy's resources, technology, or productivity.)

Explanation / Answer

1. aggregate demand (decrease in consupmtion will result in reduction of demand)

2. left (AD will shift left)

3. fall below

4. fall below

5. increase (unemployment will rise)

6.adjust upward

7. aggregate demand

8. right

9. increase

10. rises above

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