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 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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Consider starting from full-employment equilibrium in our Aggregate Demand and Supply model (with flexible wages and worker misperception of
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.
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