Question

Economics chart 

The following graph shows the economy in long-run equilibrium at the price level of 120 and potential output of $300 billion. Suppose several foreign economies experience severe recessions, causing foreign purchases of domestic goods and services to decline sharply. Shift the short-run aggregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact of the economic turmoil abroad.

 Tool tip: Click and drag one or both of the curves. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just try again and drag it a little farther. 

In the short run, the decrease in foreign spending on domestic goods associated with the recession abroad shifts the _______ curve to the _______ , causing the price level to _______ the previous price level and the quantity of output to_______  potential output. The economic turmoil abroad 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 price level of 120 and potential output of $300 billion before the decrease in foreign spending on domestic goods associated with the recession abroad. Now, show the long-run impact of the economic turmoil abroad by shifting both the short-run aggregate demand (AD) curve and the short-run aggregate supply (AS) curve to the appropriate positions. (Note: Assume that the economic turmoil abroad does not cause a change in the economy's resources, technology, or productivity.)

Answer 1