12. Consider starting from full-employment equilibrium in our Aggregate Demand and Supply model (with flexible wages and worker misperception of price level changes in the short run), at Po, QN on the output market graph below. Then we get an increase in Aggregate Demand from Agg D, to Agg D1. LR Agg S SR Agg S Agg D Agg D. We can say that O at P1, Q1, we are in a recessionary gap. O in the long run Q will increase further above Q1 as employment increases (due to workers getting wage increases). in the long run, P will increase further above P1 as workers finally get a full cost of living raise. O none of the other options. O in the long run, P and Q will return to their original levels when workers perceive the decrease in P.
12. Consider starting from full-employment equilibrium in our Aggregate Demand and Supply model (with flexible wages and worker misperception of price level changes in the short run), at Po, QN on the output market graph below. Then we get an increase in Aggregate Demand from Agg D, to Agg D1. LR Agg S SR Agg S Agg D Agg D. We can say that O at P1, Q1, we are in a recessionary gap. O in the long run Q will increase further above Q1 as employment increases (due to workers getting wage increases). in the long run, P will increase further above P1 as workers finally get a full cost of living raise. O none of the other options. O in the long run, P and Q will return to their original levels when workers perceive the decrease in P.
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter33: Aggregate Demand And Aggregate Supply
Section: Chapter Questions
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Transcribed Image Text:12. Consider starting from full-employment equilibrium in our Aggregate Demand and Supply model
(with flexible wages and worker misperception of price level changes in the short run), at Po, QN on
the output market graph below. Then we get an increase in Aggregate Demand from Agg D, to Agg
D1.
P
LR Agg S
SR Agg S.
Agg D
1
Agg D.
Q
We can say that
O at P1, Q1, we are in a recessionary gap.
O in the long run Q will increase further above Q1 as employment increases (due to workers getting wage
increases).
O in the long run, P will increase further above P1 as workers finally get a full cost of living raise.
ment
O none of the other options.
al Arts
O in the long run, P and Q will return to their original levels when workers perceive the decrease in P.
ement
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