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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Answer b is not correct I am again says answer b is not correct
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