7 . Economic fluctuations I The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $300 billion. Suppose firms become pessimistic about future business conditions and cut back on investment spending. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the business pessimism. (?) 240 AS AD AS PRICE LEVEL AD 100 200 360 450 OUTPUT (Billions of dollars] In the short run, the decrease in investment spending associated with business pessimism causes the price level to the price level people expected and the quantity of output to the natural level of output. The business pessimism will cause the unemployment rate to the natural rate of unemployment in the short run. Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $300 billion, before the decrease in investment spending associated with business pessimism,Again, the following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural level of output of $300 billion, before the decrease in investment spending associated with business pessimism. During the transition from the short run to the long run, price-level expectations will and the curve will shift to the Now show the long-run impact of the business pessimism by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve to the appropriate positions. 240 AS 200 AD 109 AS PRICE LEVEL 120 AD 100 200 300 400 500 600 OUTPUT (Billions of dollars) In the long run, as a result of the business pessimism, the price level 7 , the quantity of output the natural level of output, and the unemployment rate the natural rate of unemployment