44. Economic fluctuations I The foilowing graph shows a hypothetical economy in iong-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose the economies of several foreign countries experience rapidly growing incomes, causing Foreign spending on domestic goods and services to increase. Using the graph, shift the short-run aggregate suppiy (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the economic prosperity abroad. 240 O 200 AS AD O 160 AS PRICE LEVEL 120 80 AD 40 0 0 200 400 600 800 1000 1200 OUTPUT (Billions of dollars)1n 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 prosperity 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 equilibrium 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 7 and the '7 curve will shiFtto the T . Using the graph, iiiustrate the long-run impact of the economic prosperity abroad by shifting both the aggregate demand (AD) curve and the short- run aggregate suppiy (AS) curve in the appropriate directions. 240 O 200 AS AD O 160 AS PRICE LEVEL 120 80 AD 40 0 0 200 400 600 800 1000 1200 OUTPUT (Billions of dollars)In the long run, due to the economic prosperity abroad, the price level V , the quantity of output Y the natural level of output, and the unemployment rate V the natural rate