7 . 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 $300 billion. Suppose households suddenly begin to spend less and save more in order to increase saving for retirement. 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 sharp increase in saving. (?) 240 O AS 200 AD 180 AS PRICE LEVEL 120 80 AD 100 200 300 400 500 600 OUTPUT (Billions of dollars) In the short run, the decrease in consumption spending associated with the increase in saving causes the price level to the price level people expected and the quantity of output to the natural level of output. The sharp increase in saving will cause the unemployment rate to 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 $300 billion, prior to the decrease in consumption spending associated with the increase in saving. Along the transition from the short run to the long run, price-level expectations will and the curve will shift to theUsing the graph, illustrate the long-run impact of the sharp increase in saving 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 O 160 AS 120 PRICE LEVEL 80 AD 100 200 300 400 500 600 OUTPUT (Billions of dollars) In the long run, due to the sharp increase in saving, the price level , the quantity of output the natural level of output, and the unemployment rate the natural rate