"In the short run, the decrease in investment spending associated with business pessimism causes the price level to (rise above or fall below?) the price level people expected and the quantity of output to (rise above or fall below?) the natural rate of output. The business pessimism will cause the unemployment rate to (rise above or fall below?) 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 decrease in investment spending associated with business pessimism.During the transition from the short run to the long run, price-level expectations will (adjust upward, adjust downward or remain the same?) and the short-run (aggregate demand or aggregate supply?) curve will shift to the (left or right?).In the long run, as a result of the business pessimism, the price level (increases, decreases or remains the same?), the quantity of output (rises above, returns to, falls below?) the natural rate of output, and the unemployment rate (rises above, returns to, falls below?) the natural rate of unemployment. 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 firms become pessimistic about future business conditions and cut back on investment spending. Shift the short-run aggregate-supply (AS) curve or the short-run aggregate-demand (AD) curve to show the short-run impact of the business pessimism. + PRICE LEVEL 0 200 1000 1200 400 600 800 OUTPUT (Billions of dollars) In the short run, the decrease in investment spending associated with business pessimism causes the price level to the price level people expected and the quantity of output to the natural rate of output. The business pessimism 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 decrease in investment spending associated with business pessimism. During the transition from the short run to the long run, price-level expectations will level expectations will and the short-run and the short-run curve will shift to the Now show the long-run impact of the business pessimism by shifting both the short-run aggregate-demand (AD) curve and the short-run aggregate- supply (AS) curve to the appropriate positions. PRICE LEVEL 0 1000 1200 200400 600 800 OUTPUT (Billions of dollars) the natural In the long run, as a result of the business pessimism, the price level , the quantity of output rate of output, and the unemployment rate the natural rate of unemployment."
