Suppose the supply curve of physicists is given by w =10 + 5E, while the demand curve is given by w = 50 - 3 E. Calculate the equilibrium wage and employment level. Suppose now that the demand for physicists increases to w = 70 - 3 E. Assume the market is subject to cobwebs. Calculate the wage and employment level in each round as the wage and employment levels adjust to the demand shock. (Recall that each round occurs on the demand curve—when the firm posts a wage and hires workers.) What are the new equilibrium wage and employment level?

Suppose the supply curve of physicists is given by w =10 + 5E, while the demand curve is given by w = 50 - 3 E. Calculate the equilibrium wage and employment level. Suppose now that the demand for physicists increases to w = 70 - 3 E. Assume the market is subject to cobwebs. Calculate the wage and employment level in each round as the wage and employment levels adjust to the demand shock. (Recall that each round occurs on the demand curve—when the firm posts a wage and hires workers.) What are the new equilibrium wage and employment level?

Macroeconomics

13th Edition

ISBN:9781337617390

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter16: Expectations Theory And The Economy

Section: Chapter Questions

Problem 1WNG

See similar textbooks

Similar questions

Suppose that the oil price sharply increased for a while, which increase.Can policymakers do something to accommodate this shock? Would the outcome Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. Can policymakers do something to accommodate this shock? Would the outcome be different in this case?
What happened first was a major policy-induced supply shock. The lockdown forced firms in several directly affected sectors, from restaurants to hotels to airlines, to halt (or at least to drastically decrease) supply. In contrast to other supply shocks analyzed earlier in the book, many firms had no choice other than to stop or decrease production. As a result of sharply lower output, and thus lower income, and of increased uncertainty, this shock had a major effect on demand, not just in the sectors directly affected by the lockdown, but also in the non-affected sectors. Thus, the outcome was a combination of a supply shock and a sharp demand response. In that context, the role of macroeconomic policy was twofold. First: While it could not do much to increase output in the affected sectors, it needed to protect the firms in those sectors from going bankrupt and the workers who lost work from going hungry. Second: It needed to limit the effect of lower demand in the non-affected…
Do you think it is rational for workers to prefer sticky wages to wage cuts, when the consequence of sticky wages is unemployment for some workers? Why or why not? How do the reasons for sticky wages explained in this section apply to your argument?
Starting from a long run equilibrium, without any policy intervention, the long run impact of a temporary adverse supply shock is that prices will: a. be permanently higher and output will be restored to its long run level. b. return to the old level and output will be permanently lower. c. return to the old level and output will be restored to its long run level. d. be permanently higher and output will be permanently lowe
within the variable price fixed wage version of the keynesian model, analyze the effects of an increase in money demand (shift in liquidity preference) due to a loss confidence in stocks and bonds
Which is an example of a positive supply shock? Group of answer choices: Large decrease in input prices Strong collective bargaining from unions Strict environmental protection laws Larger increase in oil prices Suppose an economy experiences a positive supply shock. What is the short-run effect on output and the price level? Group of answer choices: Output and the price level both rise. Output and the price level both fall. Output rises and the price level falls. Output falls and the price level rises.
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 Do to Agg D1. Group of answer choices a) In the long run, P will increase further above P1 as workers finally get a full cost of living raise. b) at P1, Q1, we are in a recessionary gap. c) In the long run, P and Q will return to their original levels when workers perceive the decrease in P. d) In the long run Q will increase further above Q1 as employment increases (due to workers getting wage increases). e) None of the other options.
Consider the Efficiency Wage story. Suppose we had several periods of 0 inflation. Then if we had a decrease in Aggregate Demand that caused a decrease in the Aggregate Price level, we would see which of the following in the short run? Select one of the following multiple choice answers and explain why you chose that answer. a. higher inflation and higher unemployment. b. lower inflation (which would be deflation given our premise) and higher unemployment. c. higher inflation and lower unemployment. d. lower inflation (which would be deflation given our premise) and lower unemployment. e. none of the above.
Some economists believe that a reduction in the level of economic activity and an increase in unemployment are inevitable.’ Use the extracts and your knowledge of economics to assess the view that when an economy experiences a negative economic shock there will always be a sustained increase in unemployment.
Suppose the aggregate price level has decreased, but workers did not notice this initially. Suppose the supply curve of labor initially looked as follows. According to our self-correcting model, once workers notice that the aggregate price level has decreased, Group of answer choices a) the SL curve will increase (shift right). b) none of the other options. c) the SL curve will decrease (shift left). d) nothing will happen to the Supply of Labor (SL) curve. e) the equilibrium wage level, W, will rise.
Aggregate demand, aggregate supply, and the Phillips curve In the year 2027, aggregate demand and aggregate supply in the imaginary country of Daisen-Oki are represented by the curves AD 2027 and AS on the following graph. The price level is currently 102. The graph also shows two potential outcomes for 2028. The first possible aggregate demand curve is given by the curve labeled AD(a) curve, resulting in the outcome given by point A. The second possible aggregate demand curve is given by the curve labeled AD(b), resulting in the outcome given by point B. Suppose the unemployment rate is 7% under one of these two outcomes and 6% under the other. Based on the previous graph, you would expect (OUTCOME A or OUTCOME B) to be associated with the higher unemployment rate (7%). If aggregate demand is high in 2028, and the economy is at outcome B, the inflation rate between 2027 and 2028 is (1.96% or 5.00% or 4.00% or 2.94%). Based on your answers to the previous…
Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run. (Hint: Use AD-AS framework)