Suppose the economy is in a long-run equilibrium, as shown in the following graph. Now suppose that firms become pessimistic about future business conditions and decide to cut back on investment...


I don't quite understand what is asking of the change that will occur in the long run


Suppose the economy is in a long-run equilibrium, as shown in the following graph.<br>Now suppose that firms become pessimistic about future business conditions and decide to cut back on investment spending, resulting in a fall in<br>aggregate demand.<br>Use your diagram to show what happens to output and the price level in the short run.<br>LRAS<br>Aggregate Supply<br>Aggregate Demand<br>Aggregate Supply<br>LRAS<br>Aggregate Demand<br>Quantity of Output<br>As a result of this change, the unemployment rate<br>Use the sticky-wage theory of aggregate supply to think about what will happen to output and the price level in the long run (assuming there<br>no<br>change in policy).<br>On the graph, illustrate the change that will occur in the long run.<br>Price Level<br>

Extracted text: Suppose the economy is in a long-run equilibrium, as shown in the following graph. Now suppose that firms become pessimistic about future business conditions and decide to cut back on investment spending, resulting in a fall in aggregate demand. Use your diagram to show what happens to output and the price level in the short run. LRAS Aggregate Supply Aggregate Demand Aggregate Supply LRAS Aggregate Demand Quantity of Output As a result of this change, the unemployment rate Use the sticky-wage theory of aggregate supply to think about what will happen to output and the price level in the long run (assuming there no change in policy). On the graph, illustrate the change that will occur in the long run. Price Level

Jun 10, 2022
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