7. Determinants of aggregate supply The following graph shows an increase in short-run aggregate supply (AS) in a hypothetical economy where the currency is the dollar. Specifically, the short-run aggregate supply curve shifts to the right from AS, to AS2, causing the quantity of output supplied at a price level of 100 to rise from $200 billion to $250 billion. ? 200 175 AS 150 125 100 PRICE LEVEL 75 50 25 50 100 150 200 250 300 350 400 QUANTITY OF OUTPUTThe following table lists several determinants of shortrun aggregate supply. Increase Complete tlie table by selectlng the Chang - enan'o necessary to increase shortrun aggregate supply. Decrease Change N Increase AS Regulations on the rm v Human capital v Input prices V 8. Economic fluctuations I The following graph shows a hypothetical economy in long-run equilibrium at an expected price level of 120 and a natural output level of $600 billion. Suppose a sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less. 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 housing market slump. 240 O 200 AS AD 160 AS PRICE LEVEL 120 80 AD 40 200 400 600 800 1000 1200 OUTPUT (Billions of dollars)In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to V the price level people expected and the quantity of output to V the natural level of output. The housing market slump will cause the unemployment rate to V the natural rate of unemployment in the short run. Again, the following graph shows a hypothetical economy:r experiencing longrun equilibrium at the expected price level of 120 and natural output level of $600 billion. prior to the decrease in consumption spending associated with the housing market contraction. Along the transition from the short run to the long run, pricelevel expectations will V and the V curve will shiFtto the V . In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to price level people expected and the quantity of output to V the natural level of output. The housing market slump unemployment rate to V the natural rate of unemployment in the short run. Again, the following graph shows a hypothetical economy experiencing longrun equilibrium at the expected price level of 120 an of $600 billion, prior to the decrease in consumption spending associated with the housing market contraction. rise above fall below I V the In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to V the price level people expected and the quantity of output to I V the natural level of output. The housing market slump will cause the rise above fall below of $600 billion, prior to the decrease in consumption spe . u . . . ed with the housing market contraction. unemployment rate to V the natural rate a ent in the short run. Again, the following graph shows a hypothetical econom longrun equilibrium at the expected price level of 120 and natural output level In the short run, the decrease in consumption spending associated with the housing market contraction causes the price level to the price level people expected and the quantity of output to the natural level of output. The housing market slump will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following gr rise above hypothetical economy experiencing long-run equilibrium at the expected price level of 120 and natural output level of $600 billion, prior to fall below e in consumption spending associated with the housing market contraction.Along the transition from the short run to the long run, pricelevel expectations will V and the V curve will shil't to the V . adjust upward adjust downward Using the graph, iiiustrate the long-run impact of the housing market siump by sh: ate demand (AD) curve and the shortrun aggregate suppiy (AS) curve in the appropriate directions. remain the same Along the transition from the short run to the long run, price-level expectations will V and the I V curve will shift to the V . short-run aggregate supply orig-run impact of the housing market slump by shifting both the aggregate demand (AD) curve and the shortrun aggregate demand _ _ _ . . the appropriate directions. (7?) Along the transition from the short run to the long run, pricelevel expectations will V and the V curve will shito the V . Using the graph, iiiustrate the fang-run impact of the ho rket siump by shifting both the aggregate demand (AD) curve and the shortrun aggregate suppiy (A5) curve in the appropriate directions. Using the graph, illustrate the long-run impact of the housing market slump by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve in the appropriate directions. 240 O 200 AS AD 160 AS PRICE LEVEL 120 80 AD 40 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the long run, due to the housing market slump, the price level , the quantity of output the natural level of output, and the unemployment rate the natural rate.increases 0 200 400 500 800 1000 1200 OUTPUT (Billions of dollars) decreases remains the same In the long run, due to the housing market slump, the price level , the quantity of output the natural level of output, and the unemployment rate the natural rate.40 exceeds 0 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) returns to falls short of In the long run, due to the housing market slump, the price level V , the quantity of output the natural level of output, and the unemployment rate the natural rate.0 y I I l I I \\ u 200 400 500 no 1200 OUTPUT (Billion exceeds returns to falls short of In the long run, due to the housing ma price level V , the quantityr of output V the natural level of output, and the unemployment rate V the natural rate. 9. Economic fluctuations II The following graph shows the aggregate demand curve (AD), the short- run aggregate supply curve (AS), and the long-run aggregate supplyr curve (LRAS) for a hypothetical economy. Initially, the expected price level equals the actual price level, and the economy experiences longrun equilibrium at a natural level of output of $110 billion. Suppose a bout of severe weather drives up agricultural costs, increases the costs of transporting goods and services, and increases the costs of producing goods and services. Use the graph to help you answer the questions about the short-run and long-run effects of the increase in production costs that follow. (Note: You will not be graded on any adjustments made to the graph.) Hint: For simplicity, ignore any possible impact of the severe weather on the natural level of output. 130 LRAS O 125 AS AD 120 115 AS 110 PRICE LEVEL A 105 LRAS 100 AD 95 90 95 100 105 110 115 120 125 130 OUTPUT (Billions of dollars)The shortrun economic outcome resulting from the increase in production costs is known as v . Suppose now that the government decides not to take any action in response to the shortrun impact of the severe weather. In the long run, given that the government does nothing, the output level in the economy will equal billion and the price level will equal :- Wl/l\\ 90 95 100 105 110 115 120 125 130 OUTPUT (Billions of dollars) The shortrun economic outcome resulting from the increase in production costs is known as V . Suppose now that the government decides not to take anyr action in response to the shortrun impact of the severe weather: In the long run, given that the government does nothing, the output level in the economy will equal billion and the price level will equal