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 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. In the short run, the increase in consumption spending associated with the stock market expansion causes the price level to ____(rise above / fall below)___ the price level people expected and the quantity of output to ____(rise above / fall below)____ the natural level of output. The stock market boom will cause the unemployment rate to ____(rise above / fall below)_____ 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 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 ____(adjust upward / adjust downward / remain the same)___ and the ___(short-run aggregate supply/ aggregate. In the long run, as a result of the stock market boom, the price level ____(increases / decreases / reamins that same)___ , the quantity of output ____(rises above / returns to / falls below)____ the natural level of output, and the unemployment rate ___(rises above / returns to / falls below)____ the natural rate of unemployment.