1 image: A) Graph should be fixed 1) a)rise above b) fall below 2) a)rise above b) fall below 3) a)rise above b) fall below 4) a)adjust upward b) adjust downward c)remain the same 5) a)short run aggregate supply b) aggregate demand 6) a)left b) right 2 Image: B) Graph should be fixed 7) a)increase b) decrease c) remains the same 8) a) exceeds b) returns to c)falls short of 9) a) exceeds b) returns to c)falls short of

The following graph shows a hypothetical economy in longrun equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose the economies of several foreign countries experience raploly growing Incomes, causing foreign spending on domestic goods and services to increase. Using the graph, shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the economic prosperity abroad. 240 mo 20\" AD _.D 160 _. AS in > in -| 120 LU 2 n: n. so 40 0 I i l I ' o 200 400 so) 500 100i) Izou OUTPUT (Bilions of dollars) In the short run, the increase in foreign spending on domestic goods associated with expansion abroad causes the price level to V the price level people expected and the quantity of output to V the natural level of output. The economic prosperlwI abroad will cause the unemployment rate to V the natural rate of unemployment In the short run. Again, the following graph shows a hypothetical economy experiencing long-run equitlhrium at the expected price level of 120 and natural output level of $600 billion, prior to the increase In foreign spending on domestic goods associated with expansion abroad. Along the transition from the short run to the long run, price-level expectations will V and the V curve will shiftto the V . Using the graph, illustrate the long-run impact of the economic prosperity abroad by shifting hath the aggregate demand (AD) curve and the shorrv run aggregate supply (AS) curve in the appropriate directions. 0 AD :0: _I AS E ll] 2 u: o. o 200 4nd and mo moo 1200 OUTPUT (Bilions oi dollus) in the long run, due to the economic prosperity abroad, the price level V . the quantity of output 7 the natural level of output, and the unemployment rate V the natural rate