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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Diagrammatically represent the short-run effect of each of the following on the price level and on Real GDP:

a. An increase in wealth

b. An increase in wage rates

c. An increase in labor productivity

(a)

To determine

Estimate the short run effect on increase in wealth.

Explanation

Increase in wealth:

If wealth increases, then the consumption of goods and services will increase. When people consumption increases, then the aggregate demand will also increase. This leads to a shift in the aggregate demand curve to rightward from AD to AD1 and also the price level increase from P1 to P2...

(b)

To determine

Estimate the short run effect on increases in wage.

(c)

To determine

Estimate the short run effect on increase in labor productivity.

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