6. Problems and Applications Q1 The chapter suggests that the economy, like the human body, has "natural restorative powers." Illustrate the short-run effect of a rise in aggregate demand. Aggregate Demand Aggregate Supply Price Level Quantity of Output Aggregate Demand Aggregate Supply Indicate the short-run effect of a rise in aggregate demand on each of the variables in the table. Variable Short-run Effect Output Income Employment Now consider what happens to the economy over time if the government does not use stabilization policy. Adjust the previous graph to show the long-run outcome if the government does nothing in response to the rise in aggregate demand. True or False: The long-run adjustment generally occurs in a matter of years. True False