The economy begins in longcrun equilibrium. Thenone day, the president appoints a new chair of theFederal Reserve. 11\is new chainnan is well known forher view that inflation is not a major problcn1 for aneconomy.a. How would this news affect the price level thatpeople would expect to prevail?b. How would this change in the expected pricelevel affect the nonlinal wage that workers andfmn.s agree to in their new labor contracts?c. How would this change in the nonlinal wageaffect the profitability of producing goods andservia,s at any given price level?d. How docs this change in profitability affect theshort-run aggregate-supply curve?e. ff aggregate demand is held constant, how docsthis sllift in the aggregate-supply curve affect theprice level and the quantity of output produced?f. Do you think this Fed chainnan was a goodappointment?
The economy begins in longcrun equilibrium. Then
one day, the president appoints a new chair of the
Federal Reserve. 11\is new chainnan is well known for
her view that inflation is not a major problcn1 for an
economy.
a. How would this news affect the price level that
people would expect to prevail?
b. How would this change in the expected price
level affect the nonlinal wage that workers and
fmn.s agree to in their new labor contracts?
c. How would this change in the nonlinal wage
affect the profitability of producing goods and
servia,s at any given price level?
d. How docs this change in profitability affect the
short-run aggregate-supply curve?
e. ff aggregate demand is held constant, how docs
this sllift in the aggregate-supply curve affect the
price level and the quantity of output produced?
f. Do you think this Fed chainnan was a good
appointment?
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