11. Businesses expect significantly 12. Consumer spending increases higher inflation Part 3 - Making Connections - Read the quote below and answer the following question. "Policies to strengthen education and training, to encourage entrepreneurship and innovation, and to promote capital investment, both public and private, could all potentially be of great benefit in improving future living standards in our nation." 13. Pick one of the three policies mentioned in the quote above. Identify what that policy most likely does to the SRAS and explain why that policy improves living standards. Part 4 - Check Your Understanding - Answer the following questions. 14. Assume the economy experiences higher price levels, explain why the aggregate supply curve is upward sloping in the short run. 15. Assume the economy experiences higher price levels, explain why the aggregate supply curve is vertical in the long-run. 16. If businesses know that the long-run aggregate supply curve is vertical, explain why they bother producing more output when price level increases in the short-run. 3.3- Aggregate Demand and Supply Check Your Understanding - Use the information in the graph below to answer the following questions. 1. Based on the chart, did the US economy face a recessionary gap or inflationary gap in 2001? 2. Based on the chart, predict what happened to the unemployment rate from 2002-2006? Explain how you determined your