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Suppose an economy is in long-run equilibrium. i. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short-run and long-run aggregate supply. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves ii. from the initial to the new short run equilibrium (call it point B). Now show the new long-run equilibrium (call it point C). What causes the iii. economy to move from point B to point C? According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C? According to the sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? iv. V.

Suppose an economy is in long-run equilibrium. i. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short-run and long-run aggregate supply. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves ii. from the initial to the new short run equilibrium (call it point B). Now show the new long-run equilibrium (call it point C). What causes the iii. economy to move from point B to point C? According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C? According to the sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? iv. V.

Principles of Economics (MindTap Course List)
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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Suppose an economy is in long-run equilibrium. i. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short-run and long-run aggregate supply. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves ii. from the initial to the new short run equilibrium (call it point B). Now show the new long-run equilibrium (call it point C). What causes the iii. economy to move from point B to point C? According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C? According to the sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? iv. V.
Transcribed Image Text:Suppose an economy is in long-run equilibrium. i. Use the model of aggregate demand and aggregate supply to illustrate the initial equilibrium (call it point A). Be sure to include both short-run and long-run aggregate supply. The central bank raises the money supply by 5 percent. Use your diagram to show what happens to output and the price level as the economy moves ii. from the initial to the new short run equilibrium (call it point B). Now show the new long-run equilibrium (call it point C). What causes the iii. economy to move from point B to point C? According to the sticky-wage theory of aggregate supply, how do nominal wages at point A compare to nominal wages at point B? How do nominal wages at point A compare to nominal wages at point C? According to the sticky-wage theory of aggregate supply, how do real wages at point A compare to real wages at point B? How do real wages at point A compare to real wages at point C? iv. V.
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