The following graph shows the economyr in longrun equilibrium at the expected price level of 120 and the natural rate of output of $600 billion. Suppose a sudden and severe contraction in the housing market reduces the value of homes and causes consumers to spend less. Shift the shortrun aggregatesupply (AS) curve or the shortrun aggregatedemand (AD) curve to Show ohe short-run impact of the housing market slump. 240 200 AS El 150 4 AS LLl :5 LLl 4 120 LLl 9 o: D. so AD 40 u u 200 400 one 300 1:200 1200 OUTPUT (Billions of dollars) In the short runr the decrease in consumption spending associated with the housing market contraction causes the price level to rise above V the price level people expected and the quantity of output to fall below v the natural rate of output. The housing market slump will cause the unemployment rate to rise above V the natural rate of unemployment in the short run. Again, the following graph shows the econom'lur in longrun equilibrium at the expected price level of 120 and the natural rate of output of $600 billion, before the decrease in consumption spending associated with the housing market contraction. During the transition from the short run to the long run, pricelevel expectations will adjust upward V and the shortrun aggregate-supplyr V cunre will shift to the left V . Now Show the longrun Impact of the housing market stump by shifting both the shortrun aggregatedemand (AD) curve and the shortrun aggregatesupply (AS) curve to the aporoon'ate positions. 240 O 200 AS AD El mo _. AS LIJ 3: LIJ | 120 UJ 9 cc III. on PD 4:3 0 u 200 400 one euro 1000 1200 OUTPUT (Billions of dollars) In the long run, as a result of the housing market slump, the price level decreases V , the quantity of output rises above V the natural rate of output, and the unemployment rate falls below V the natural rate of unemployment