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 $600 billion. Suppose a stock market boom increases household wealth and causes consumers to spend more. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the stock market boom. (?) 240 O- AS 200 AD 160 AS 120 PRICE LEVEL AD 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to the price level people expected and the quantity of output to the natural level of output. The stock market boom 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 $600 billion, before the increase in consumption spending associated with the stock market expansion. During the transition from the short run to the long run, price-level expectations will and the curve will shift to theNow show the long-run impact of the stock market boom by shifting both the aggregate demand (AD) curve and the short-run aggregate supply (AS) curve to the appropriate positions. 240 O AS 200 AD 180 AS 120 PRICE LEVEL 80 AD 200 400 600 800 1000 1200 OUTPUT (Billions of dollars) In the long run, as a result of the stock market boom, the price level the quantity of output the natural level of output, and the unemployment rate the natural rate of unemployment