Does this look correct? The following graph shows the economy in long-run equili

Question

Does this look correct?

The following graph shows the economy in long-run equilibrium 3t the expected price level of 120 3nd the natural rate of output of $600 billion. Suppose several foreign economies experience severe recessions, causing foreign purchases of domestic goods and services to decline sharply. Shift the short-run aggregate supply (AS) curve or the short-run aggregate demand (AD) curve to show the short-run impact of the economic turmoil abroad. In the short run, the decrease in foreign spending on domestic goods associated with recession abroad causes the price level to fall below the price level people expected and the quantity of output to fall below the natural rate of output. The economic turmoil abroad will cause the unemployment rate to rise above 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 3nd the natural rate of output of $600 billion, before the decrease in foreign spending on domestic goods associated with recession abroad. During the transition from the short run to the long run, price-level expectations will adjust downward and the short-run aggregate demand curve will shift to the right.

Explanation / Answer

correct

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