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 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-runimpact of the business pessimism.

Shirt the shortrun aggregate suppiy (AS) curve or the aggregate demand (AD) curve to show the shortrun impact of the business pessimism. 24:: + am: As AD E| mu _, AS LLI 2} LLI 4 12a LLI E c: D. an AD 4:: u I: 2m: 411:: am: am: mm: mm: OUTPUT {Billions of dollars)