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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 household suddenly begin to spend less and save more in order to increase saving for retirement Shit the short-rut agregate supply (AS) curve or the aggregate demand (AD) curve to show the short-run impact on the sharp increase in saving ? 200 & -O 100 AS AD 100 AS PRICE LEVEL 130 AD . 500 000 200 350 400 OUTPUT (ions of dollars) In the short run, the decrease in consumption spending associated with the increase in saving causes the price level to the price level people expected and the quantity of output to the natural level of output. The sharp increase in saving will cause the unemployment rate to the natural rate of unemployment in the short run Now show the long-run impact of the sharp increase in saving by shifting both the aggregate demand (AD) curve and the short run aggregate supply (AS) curve to the appropriate positions 200 AS AD ? -0 100 AS PRICE LEVEL 120 10 AD 10 D O 100 500 500 200 300 400 OUTPUT (Bullions of dollars) the In the long run, as a result of the sharp increase in saving the price level the quantity of output natural level of output, and the unemployment rate the natural rate of unemployment

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