The following graph shows the economy in long-run equilibrium

The following graph shows the economy in long-run equilibrium at the expected price level of 120 and the natural rate of output of $600 billion. Suppose the government increases spending on building and repairing, highways, bridges, and ports.Shift the short-run aggregate supply (AS) curve or the short-run aggregate demand (AD) curve to show the short-run impact of the increase in government spending.In the short run, the increase in government spending on infrastructure causes the price level to ______ the price level people expected and the quantity of output to _______ the natural rate of output. The increase in government spending 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 rate of output of $600 billion, before the increase in government spending on infrastructure. During the transition from the short run to the long run, price-level expectations will ______ and the short-run _______curve will shift to the __________ .In the long run, as a result of the increase in government spending, the price level_______ , the quantity of output_______ the natural rate of output, and the unemployment rate _______the natural rate of unemployment.

 

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