\fInterpret the change you drew on the previous graph by lling in the blanks in the following paragraph: The lowerthanexpected price level causes rms to earn V prot than they expected on each unit of output they produce, and, therefore, they v their production level. t the same time, the real value of wages and other resource prices is V than workers and rms expected when they signed long-tenn contracts. As a result, the economy as a whole products at a level 7 its potential output, and the unemployment rate is 7 than its natural rate. Now, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members. The following graph shows the potential output for this economy as well as the same initial shortrun aggregate supply curve as in the rst graph. Shiit one or ho'i of these lines to illustrate how the economy adjusts to a new longrun equilibrium. Now, suppose prices remain lower than expected. As a result, in the next round of labor negotiations, unions accept lower wages for their members. The following graph shows the potential output for this economy as well as the same initial short-run aggregate supply curve as in the first graph. Shift one or both of these lines to illustrate how the economy adjusts to a new long-run equilibrium. 240 O SRAS 200 Potential Output O 160 SRAS 120 PRICE LEVEL 80 40 Potential Output 0 0 3 8 12 15 18 REAL GDP (Trillions of dollars)3. The short-run and longrun supply response to a change in the price level The following graph represents the shortrun aggregate supply curve (SEAS) based on an expected price level of 120. The economy's potential output level is $9 trillion. Major unions across the country have recently negotiated threeyear wage contracts with employers. The wage contracts are based on an expected price level of 120, but the actual price level turns out to be 80. ShowI the short-run effect of the unexpectedly low price level by dragging the curve or moving the point to the appropriate position. Tool tip: To move the curve, click and drag any part of the curve except the point. To move the pointr click and drag the point along the curve. If 1you want to move hodi. rst move the curve, and then move the point. The curve and point will snap into position, so if you try to move one of them and it snaps back to its original position, just try again and drag it a little farther